COMPETITION POLICY in EASTERN EUROPE and CENTRAL ASIA Focus on Bid Rigging in Public Procurement

COMPETITION POLICY IN EASTERN EUROPE AND CENTRAL ASIA Focus on Bid Rigging in Public Procurement

OECD-GVH Regional Centre for Competition in Budapest (Hungary) Newsletter no. 17, July 2021

Inside a competition authority: BOSNIA AND HERZEGOVINA 2 Content Foreword: The economic Phoenix ��3 Programme 2021 of the OECD-GVH Regional Centre for Competition in Budapest ��4 Fighting Bid Rigging in Public Procurement ��7 The fight against bid rigging: a goal for competition authorities in Eastern Europe and Central Asia, by Despina Pachnou and Renato Ferrandi ��8 Corruption, public procurement and competition in Eastern Europe and Central Asia: The Case of the Energy sector in Ukraine, by Olga Savran, Tanya Khavanska and Oleksandra Onysko �� 13 Tackling bid rigging in Serbia: B2M – A recent success story, by Maja Dobrić and Miki Vidaković �� 16 Fight against bid-rigging in Romania: Highlights of the recent enforcement and advocacy activity of the Romanian Competition Council, by Irina Popovici and Oana Neg �� 19 Bid-rigging in Ukraine: Flavoured products, by Olga Nechytailo �� 22 No smoke without fire or the curious case of proving cartels in public procurement in Georgia, by Salome Kavtaradze and Zinaida Chkhaidze �� 24 Albanian bid-rigging Case, by Juliana Latifi and Mimoza Kodhelaj �� 26 Bid-rigging in Kazakhstan: New steps in the fight against bid rigging (Automotive procurement cartel) by Agency of the Republic Kazakhstan for competition protection �� 29 Bid-rigging in Hungary: The basic principles of detecting public procurement collusion and the cooperation with public procurement Bodies, by Attila Karsay �� 32 The Hellenic Competition Commission’s practice in bid-rigging cartels in the construction sector, by Kelly Benetatou and Lefkothea Nteka �� 35 An overview of the Hong Kong experience in fighting bid-rigging,by Hong Kong Competition Commission �� 38 Bid rigging investigations: The Israel Competition Authority experience, by Haim Arbib �� 40 Fighting bid-rigging in Italy, by Alessandra Tonazzi and Michele Pacillo �� 42 Fighting bid rigging in the U.S., by Michelle Rindone and Carolyn Sweeney �� 47 News from the Region �� 50 Legislative reforms in the field of economic competition in the Republic of Armenia, by State Commission for the Protection of Economic Competition of Armenia �� 51 News from the OECD �� 53 Insights from the OECD competition week of June 2021, by Carlotta Moiso �� 54 Competition enforcement around the world: OECD competition trends, by Wouter Meester �� 57 Inside a Competition Authority: Bosnia and Herzegovina �� 60 The Competition Council of Bosnia and Herzegovina and its recent activity �� 61 Interview with the Chairperson: Mr. Stjepo Pranjic �� 64

The RCC video project “Key competition topics explained in a few minutes” �� 69 Literature digest on bid rigging, by Pedro Caro de Sousa �� 70 Good luck, dear Milán! �� 72

DISCLAIMER: The RCC is not responsible for the accuracy of information provided by the articles’ authors. Information provided in this publication is for information purposes only and does not constitute professional or legal advice. 3

Foreword

The economic Phoenix advocacy in the next few years: the fight against big rigging in public procurement. We can expect that public procurement, which accounts for 12% of gross domestic product and almost 30% of total In his Histories, written in the fifth century BC, Herodotus government expenditures in OECD Members2, will further talks about the legend of the Phoenix – the fabled bird that burns increase as a reaction to the current crisis. It is paramount that up and rises from its ashes. Over the centuries, this myth has public tenders are conducted successfully, with a view to selecting spread across several cultures, as a symbol of renaissance and the best companies and saving public resources. hope. Many competition authorities have identified the fight We all hope that the world economy will rise again like the against bid rigging as a priority for their efforts. By detecting and Phoenix, after the recession caused by the Covid-19 pandemic. punishing bid rigging – which is a cartel, i.e. a serious antitrust Eastern Europe and Central Asia have not escaped the global infringement – they also deter other businesses from future economic downturn. According to OECD estimates, in 2020 the wrongdoing. sanitary crisis inverted the upward trend of the previous years The following articles highlight a broad range of inspiring and hit Eastern Europe particularly hard (where the EU average initiatives that have been adopted by competition authorities in decline of 5% was exceeded).1 Eastern Europe and Central Asia, as well as by other advanced Fostering a quick and vigorous recovery is the key challenge competition authorities in different continents. for public institutions in the years to come. Public investments A common theme seems to be the fruitful cooperation with and spending will need to be combined with a set of coordinated public procurement bodies. Firstly, competition authorities can measures, including those in support of investments and trade, use their advocacy tools to help procurement bodies improve employment, access to finance, as well as against the digital tender design and thus prevent cartels. Secondly, procurement divide and corruption. officials can share their expertise and procurement data, thus enhancing infringement detection by competition authorities and contributing to more informed antitrust decisions. Furthermore, our journey of exploration across competition authorities of Eastern Europe and Central Asia continues. This time we will discover the activity of the Competition Council of Bosnia and Herzegovina and will learn about its achievements and challenges from President Stjepo Pranjić.

The topic of the next issue of the review will bemarket studies, which represent a powerful tool for competition advocacy and Source: OECD Economic Outlook, May 2021 enforcement. In particular, they allow competition authorities to gain an in-depth understanding of key sectors, especially Competition policy will have to be in the forefront of this when they are affected by quick changes in the business model. struggle. Competition is the fuel that powers the economic We would like to learn more about how antitrust authorities system by creating the right incentives to invest, innovate and select, analyse and assess competition issues in specific sectors, thrive. It also promotes competitive neutrality by preventing and eventually use the findings of their studies. The deadline discriminatory terms between State Owned Enterprises and for your contributions is 15 October 2021. private companies or between domestic and foreign firms (see our July 2020 edition). This edition of our review is dedicated to another area that promises to be crucial for competition enforcement and

1 OECD calculation based on the IMF database for the EU average. Source: IMF World Economic Outlook, April 2021. 2 OECD (2019), Government at a Glance 2019, OECD Publishing, https://doi.org/10.1787/8ccf5c38-en. 4

Programme 2021 The Programme of the OECD-GVH Regional Centre for In line with last year’s programme, traditional seminars Competition for 2021 has been designed in a manner that enables on competition law (Section A of the Programme) are it to be flexibly adapted depending on the developments of the complemented by other initiatives aimed at developing the Covid-19 pandemic, particularly in the first semester of 2021. potential of the Regional Centre (Section B). The Heads of the As long as circumstances permit, we will organise in-person Beneficiary Agencies will discuss and further explore these seminars, which represent the most complete and satisfactory innovative activities at the 15th Anniversary Celebration of the format for training and networking purposes. However, should OECD-GVH RCC “Reviewing the past to design the future”, the Covid-19 outbreak still impose travel restrictions, in-person scheduled for November 2021. seminars will be replaced by virtual seminars.

A. Seminars on competition law

Virtual Seminar – Tackling bid rigging in public procurement Bid rigging involves groups of firms conspiring to raise prices or lower the quality of the goods or services offered in public tenders. OECD countries spend approximately 12% of their GDP in public procurement. This percentage can be higher in developing countries. Competition authorities may 2-4 March play a key role in preventing and tackling this anti-competitive practice, which costs governments and taxpayers billions of dollars every year. Expert competition officials illustrated enforcement and advocacy actions conducted in their jurisdictions, also in light of the OECD Guidelines for Fighting Bid Rigging in Public Procurement. Virtual Seminar – Market studies: a key driver for competition advocacy and enforcement Market studies assess whether competition in a market is working efficiently and identify measures to address any issues that are identified. These measures can include recommendations such as proposals for regulatory reform to remove competition restrictions. Market studies also provide comprehensive 18-19 May knowledge of the market in question, which can be valuable to better detect antitrust infringements and take more informed decisions. However, they are complex initiatives, which require a good plan and prolonged engagement. Competition experts from several jurisdictions shared their experience on market studies and drew on some good practices, also in light of the OECD Market Studies Guide for Competition Authorities. Virtual Seminar – The assessment of abusive conduct by dominant players Cases of abuse of dominance are becoming increasingly complex for competition authorities. Building on the best international practices, this seminar will go through the steps that lead to a 21-22 September careful and informed assessment, starting from market definition and the identification of market power. The discussion will then focus on the methods and tools that competition authorities may deploy to evaluate the effects of the conduct on competition and on consumers, in order to distinguish unlawful practices from legitimate competitive initiatives. 5

A. Seminars on competition law

GVH Staff Training Day 1 – Competition and consumer protection enforcement in the digital era: adjustment or reform? The seminar will focus on a number of issues and developments that can be traced back to digitalisation: the role of data, additional criteria for assessing vertical restraints, the relationship between consumers October and online platforms, and enforcement cooperation in global cases. As usual, particular attention will Budapest be devoted to the evolution of the EU case law. (2 days, tbc) Day 2 – Breakout sessions In separate sessions, we will provide dedicated trainings and lectures for the merger section, the antitrust section, the economics section, the consumer protection section and the Competition Council of the GVH.

15th Anniversary Celebration of the OECD-GVH RCC – Reviewing the past to design the future In a globalised world, high expertise and international cooperation have become indispensable for 10 November (tbc) competition authorities. Building on the successful experience of the Centre over the last 15 years and Budapest the international initiatives in these areas, the event will explore the ways in which the RCC’s role as a catalyst for capacity building and enhanced regional cooperation can be further enhanced.

November RCC–FAS Seminar in Russia Russia (3 days, tbc) Introductory Seminar for Young Staff – Competition law principles and procedures The aim of this seminar is to provide young authority staff with an opportunity to deepen their knowledge of key notions and procedures in competition law enforcement. Experienced practitioners 6-9 December from OECD countries will share their knowledge and engage in lively exchanges with the participants Budapest on cartels, mergers and abuse of dominance. We will discuss basic legal and economic theories as well as the relevant case law. Participants will also have a chance to face and discuss procedural issues through practical exercises. B. Additional initiatives

Training course on competition principles: first set of videos

Launch of the first video (Antitrust Commitments), English version: February 2021 Launch of the first video (Antitrust Commitments), Russian version: March 2021 Launch of the second video (Competitive Neutrality), English version: April 2021 Launch of the second video (Competitive Neutrality), Russian version: May 2021 Launch of the third video (Bid Rigging), English version: July 2021 Launch of the third video (Bid Rigging), Russian version: July 2021 Launch of the fourth video, English version: September 2021 Launch of the fourth video, Russian version: October 2021 Launch of the fifth video, English version: December 2021 Launch of the fifth video, Russian version: December 2021

Questionnaire for Heads of Agencies

In preparation for the celebration of the 15th Anniversary, the RCC will circulate a questionnaire aimed at collecting the views and comments of the Heads of Agencies on a number of future opportunities for the Centre, e.g. regarding policy discussion, internal dissemination within the agencies, enforcement cooperation and synergies with other RCCs. The replies will be elaborated into a working document to be discussed at the Anniversary.

15th Anniversary Publication: Special supplement of the RCC Newsletter on regional and international cooperation

Renato Ferrandi, Senior Competition Expert, Renato.FERRANDI@oecd.org Fighting Bid Rigging in Public Procurement 8

The fight against bid rigging: a goal for competition authorities in Eastern Europe and Central Asia

Despina Pachnou, Renato Ferrandi, Competition Expert, OECD Senior Competition Expert, OECD

overcharge raised prices by 57.5% in the procurement of insulin.5 1. What is bid rigging and why it is important to Combatting bid rigging is crucial to ensuring that public combat it procurement procedures are competitive, and that the public 1.1. Bid rigging is a competition law infringement sector has opportunities to achieve value for money. Recognising Bid rigging is an illegal agreement through which companies this, the OECD developed Guidelines for Fighting Bid Rigging in that should be genuinely competing in a public procurement Public Procurement (“Guidelines”) in 2009 and, in 2012, included process collude to fix their bids, in order to raise prices and/ and expanded them in an OECD Recommendation on Fighting or lower the quality of the goods or services that they offer. Bid Bid Rigging in Public Procurement (“Recommendation”). The rigging a hard-core cartel conduct, prohibited under competition Recommendation encourages jurisdictions to design public laws. The terms collusion, cartel and bid rigging are often used procurement to promote competition that is more effective and alternatively. reduce the risk of bid rigging. This aims at deterring bid rigging at Bid rigging occurs between bidders or potential bidders, and the front end of public procurement. The Recommendation also does not require the involvement of a procurement official. If aims to help detection of collusion in tenders and its reporting to a public procurement official is involved, bid rigging may be the competent competition authority. The Recommendation and accompanied by other illegal and punishable conducts, like In the last 10 years, the OECD Competition Division’s Secretariat corruption, fraud and mismanagement. has conducted numerous projects on fighting bid rigging in public procurement, reviewing the quality of procurement 1.2. Bid rigging is costly law and soundness of procurement practices of public entities 6 Public procurement is a core government spending activity, with against the Recommendation. The Recommendation is currently direct impact on the quality of public services offered to citizens scheduled to be updated to reflect developments of the last 10 in sectors such as healthcare, education and infrastructure. In years, and expand its scope with new policy recommendations 2017, public procurement represented 11.8% of gross domestic to governments. product in OECD Members (ranging from 4.9% in Mexico to 19.5% in the Netherlands) and 29.1% of total government 2. Competition enforcement to tackle bid rigging expenditures, making it a core economic activity.3 Mature and developing competition authorities around the world When bid rigging concerns a public procurement process, i.e. prioritise investigating and prosecuting bid-rigging cartels, and when suppliers rig their bids to decide, in advance, who will win demonstrate an appetite for enforcement. in a tender for a public contract and how, public procurement becomes pointless, and the public budget as well as the quality 2.1. The detection tools: leniency, third party whistle- of services rendered to citizens are harmed. Studies show that blowers, cartel screens bid rigging in public procurement can increase prices by 20% The most usual bid-rigging detection tool is leniency. Leniency 4, and this percentage can be even higher: for example, Mexico’s programmes are ubiquitous: all OECD members have one. competition authority, COFECE, estimated that bid rigging Leniency programmes are widely considered the most effective

3 OECD (2019), Government at a Glance 2019, OECD Publishing, https://doi.org/10.1787/8ccf5c38-en. 4 Smuda, F. (2015), Cartel Overcharges and the Deterrent Effect of EU Competition Law,http://ftp.zew.de/pub/zew-docs/dp/dp12050.pdf . 5 https://cofece.mx/wp-content/uploads/2017/11/HISTORIA_IMSS_080415.pdf 6 www.gvh.hu/en/press_room/press_releases/press_releases_2016/hungarian_success_in_the_icn_wbg_competition_advoc.html?query=kartell%20chat&query=kartell%20chat. GVH was awarded an honourable mention for this tool, in the 2016 International Competition Network and the World Bank Group advocacy contest. 9

tool for detecting cartels in mature jurisdictions.7 2.2. The importance of reliable procurement data for In certain economies with tight industry structures, high rates of identifying bid rigging family-owned businesses or with a less developed competition In order for both digital and paper-based bid-rigging screening culture, leniency programmes may be less effective. In response, methods to be effective, data access and quality are crucial. First, many jurisdictions established anonymous whistle-blower competition authorities need access to the procurement data systems. For example, in Hungary, the GVH introduced an held by the procurement authorities in order to check them and anonymous contact system for providing information and asking apply their filters. Second, however sophisticated the screening questions on cartels, called the cartel chat.8 method, its effectiveness depends on the quality of the underlying Competition agencies increasingly complement their leniency data to which screening is applied. and whistle-blower programmes by pro-actively checking In OECD projects on fighting bid rigging in public procurement, procurement data to find incriminating errors cartelists make, the Secretariat consistently recommends that data should like suspicious bidding and pricing patterns, and identify cases be consistent and error-free, so that data records can be that deserve scrutiny. linked and comparisons made, and time series constructed. These checks were initially conducted manually, on paper-kept For example, pricing data should be recorded in the same data. Paper-based research remains an option, but the increasing way (currency, denominations, corresponding units etc.); availability of reliable electronic public procurement data and and fields should use common rules (naming conventions, advances in digital data manipulation methods paved the way for coding etc.). Format is important: for example, detailed competition authorities’ development of digital screening tools records in spreadsheets or databases are more user-friendly to detect bid rigging (digital cartel screens). than electronic copies of contracts. Data should also fit the To put it simply, screens are digital filters, which are designed proposed analysis: for example, it is not enough to have records on the basis of competition red flags and that competition of contract award decisions, but also of all bids and bidders. authorities apply to digital procurement data to identity and Advocacy may be necessary to gather support by procurement quantify the probability of bid rigging and single out cases bodies and discuss how procurement data should be collected that merit enforcement attention. Such red flags might, for and kept, and agree on access rights for competition authorities. example, be independent bidders offering identical prices, In some cases, legislative change may be necessary, when sudden price increases, competitors normally active in the procurement data are protected by law and cannot be disclosed particular procurement market refraining from bidding, etc. to other public sector bodies like competition authorities. There are different methods of digital screening, ranging from sophisticated software based on complex algorithms to simple 2.3. Sanctions: administrative, civil and criminal liability; statistical methods.9 As a general rule, screening is a repetitive debarment from participation in tenders exercise and can be resource-intensive. It is important to Bid rigging is illegal in all OECD jurisdictions, and a criminal note that the finding of red flags show probability and do offence in 29 out of 37 Members.10 Out of these 29 Members, 19 not constitute evidence of bid rigging, unless in extreme have criminal sanctions for all hard-core cartels; the additional circumstances of undeniable overwhelming findings, and under 10 that have criminal sanctions for bid rigging only, and punish specific conditions. Competition authorities should look at their other cartels with administrative sanctions. screening findings, decide if they will open a case, and proceed Civil liability, through private damages actions seeking with their usual investigation methods. compensation for harm caused by cartels is picking up. In the European Union, the competition litigation landscape is changing through the application of the directive on antitrust

7 OECD (2018), Workshop on cartel screening in the digital era at www.oecd.org/competition/workshop-on-cartel-screening-in-the-digital-era.htm 8 18 OECD Members (Australia, Canada, Chile, Denmark, Estonia, France, Greece, Iceland, Ireland, Israel, Japan, Korea, Mexico, Norway, Slovak Republic, Slo- venia, United Kingdom and the United States) provide for criminal sanctions for all hard-core cartels, therefore including bid rigging. An additional 11 Members (Austria, Belgium, Colombia, Czech Republic, Finland, Germany, Hungary, Italy, Poland, Portugal and Turkey) provide for criminal sanctions for bid rigging cases only. See www.oecd.org/daf/competition/review-of-the-1998-oecd-recommendation-concerning-effective-action-against-hard-core-cartels.htm0 9 Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union https://eur-lex.europa.eu/legal-content/en/ALL/?uri=CE- LEX%3A32014L0104 10 For example, the Danish competition authority published guidelines to help distinguish whether a joint bid is pro- or anti-competitive, and provide advice on information exchange in tenders; see Danish Competition and Consumer Authority (2020), Joint bidding under competition law, www.en.kfst.dk/nyheder/ kfst/english/news/2020/20201211-new-guidelines-on-joint-bidding/ For guidelines issued by several competition authorities, see OECD (2016), Fighting bid rigging in public procurement: Report on implementing the OECD Recommendation, at www.oecd.org/daf/competition/Fighting-bid-rigging-in-public-procurement-2016-implementation-report.pdf 10

damages actions11, which aims to make it easier to sue for cartel- Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and induced harm and introduces common standards for access to Uzbekistan. The Eastern Partnership (EaP) involves Armenia, evidence, limitation periods, passing-on defences, standing of Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine. The SEE (South East Europe) region encompasses the following indirect purchasers, quantification of harm, joint liability, etc. In economies: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the case of bid rigging, the main harmed party, and therefore the North Macedonia, Kosovo13, Montenegro, Romania and Serbia. plaintiff in such lawsuits, is the procurement authority itself. In such cases, support by the competition authority is crucial, to Competition authorities in the region are aware that it is even help the procurement authority put together the law suit, with more important to ensure value for money in public procurement sufficient information to be able to win the case. at times of economic recession and have set the fight against bid In many jurisdiction, companies that have been found guilty of rigging as a priority for their action in the coming years. bid rigging can be debarred from participating in other tenders, In 2021, the Georgian National Competition Agency concluded an for a period of time. Some jurisdictions impose debarment investigation into a case of bid rigging related to free community automatically, and some at the discretion of the procurement canteen services. In Romania, the Competition Council (usually) or competition (rarely) authority. For instance, discovered that during a long period more than seven years some discretion may be needed to assess how many companies would firms rigged public tenders for the acquisition of electric meters. and should remain in the public procurement market, after In 2019, the Antimonopoly Agency of Kazakhstan carried out debarment is imposed, to make sure that the market remains two major investigations on big rigging in public procurement competitive and that supply is not endangered. for the supply of cars and trucks. Also in 2019, the Antimonopoly Committee of Ukraine fined participants in a collusion that 2.4. What competition authorities in the region have done affected seven tenders in the military defence sector, also thanks and could do to the introduction of e-procurement in Ukraine, which allowed As illustrated by the OECD report “Improving the Legal big data analysis and increased detection opportunities. Environment for Business and Investment in Central Asia” For their part, the Albanian Competition Authority and the (2021)12, the economies of Eastern Europe and Central Asia Serbian Commission for the Protection of Competition have entered a serious recession in 2020, following the Covid-19 an appreciable record of formal proceedings tackling horizontal pandemic. The impact seems to be more pronounced in Eastern agreements, including bid rigging in public procurement. In Europe than in Central Asia and Russia (see Figure below). 2018, the highest court in Serbia upheld a complex bid rigging decision by the Commission for the Protection of Competition on the procurement of consumable material for personal and collective hygiene by the Ministry of Defence. The competition authorities of the region can further strengthen the fight against bid rigging. To this end, as discussed below, they should co-operate with the domestic public procurement bodies to reduce the risks of bid rigging through careful design of the procurement process, and to detect bid-rigging conspiracies if they occur.

3. Competition advocacy to prevent bid rigging Competition law enforcement is regularly accompanied by advocacy initiatives undertaken by competition authorities to raise awareness on bid-rigging costs, promote competition in public procurement, and recommend good practices in Source: OECD, “COVID-19 in Central Asia: Implications for Private the prevention and detection of collusion. Enforcement and Sector Development” (forthcoming) Note: The Central Asia region (CA) comprises the countries of advocacy are mutually reinforcing. Through their enforcement

11 OECD Public Procurement Toolbox, Checklist for protecting competition when splitting contracts into lots, www.oecd.org/governance/procurement/toolbox/ search/checklist-protecting-competition-splitting-contracts-lots.pdf 12 https://www.oecd.org/eurasia/improving-legal-environment-business-central-asia.htm. The Improving the Legal Environment for Business and Investment Central Asia project looks to address the legal and regulatory frameworks for business and investment in Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. The project report, discussed at a ministerial meeting in September 2020 and launched in April 2021, presents the findings of an assessment of ten dimensions of the legal environment that are crucial for a healthy business climate. 13 This designation is without prejudice to positions on status, and is in line with United Nations Security Council Resolution 1244/99 and the Advisory Opinion of the International Court of Justice on Kosovo’s declaration of independence 11

cases, competition authorities acquire experience and insights in All OECD projects fighting bid rigging conducts include markets prone to cartelisation, the likely incidence of bid rigging, extensive capacity building for senior public procurement as well the clues that bid rigging leaves behind. This knowledge officials on the risks and costs of bid rigging, the forms it can can feed into advocacy initiatives. Likewise, advocacy can take, good practices to design competitive tenders and to detect support the introduction of pro-competitive rules and practices, collusion by bidders. and trigger reporting to the competition authority by public procurement officials of bid-rigging suspicions. 3.4. The importance of inter-institutional co-operation agreements 3.1. Recommendations to policy makers In country-specific projects, the Secretariat recommends Some competition authorities are vested with the power to issue putting in place formal co-operation agreements between the opinions and recommendations addressed to policy makers, competition and procurement authorities that set out the terms proposing measures that promote competition and lift barriers of inter-institutional co-operation and specify types of support to competition, including recommendations to amend the public and joint activities. procurement rules. In the context of a project on fighting bid rigging in the health sector in Peru, the Secretariat has prepared a draft agreement for 3.2. Guidelines and ad hoc advice to procurement officials the co-operation of Peru’s Social Insurance agency EsSalud and The Recommendation gives concrete examples of where the the Peruvian competition authority Indecopi, to, on the one hand, right balance between competition and procurement policies promote competition and prevention of bid rigging in EsSalud’s should be struck: for example, allowing joint bids by different procurements, and, on the other hand, improve detection and suppliers, but only under pro-competitive conditions, or investigation of bid rigging by Indecopi.15 balancing transparency requirements, which are indispensable to fight against procurement corruption, with the right level of 3.5. What competition authorities in the region have done protection of information, in order not to facilitate collusion. and could do Competition authorities across the OECD issue guidelines All competition authorities of Eastern Europe and Central Asia to assist public procurement authorities in their work. The can formulate opinions and recommendations regarding laws or OECD Competition Committee (through Working Party 2 on regulations that affect or may affect competition. In performing Competition and Regulation) has issued detailed guidance on this duty, they usually co-operate with the government how to split contracts into lots14 and how to deal with abnormally and regulatory institutions, including the domestic public low tenders. procurement bodies. Since 2019, the Albanian Competition Authority has in place 3.3. Capacity-building a Memorandum of Understanding with the Albanian agency Training public procurement officials on the risks, costs, of public procurement on co-operation to fight against bid prevention and detection of bid rigging is extremely useful. rigging in public procurement. Upon request by the domestic Procurement officials are in the best position to limit and agency for public procurement, the Competition Council of identify collusion in public tenders, as they have comprehensive Bosnia and Herzegovina recently analysed the rules on public knowledge of the relevant market, access to tender data and tenders. The Commission for the Protection of Competition documents, and opportunities to observe patterns of behaviour of North Macedonia published Guidelines for detecting bid in the bidding process. By acquiring appropriate knowledge, rigging in public procurement, in co-operation with the Bureau public officials can design tenders that make bid rigging difficult, for Public Procurement and, in 2019, issued a formal opinion and be aware of cases that merit reporting to the competition on the national Law on Public Procurement. The Agency for authority. The Recommendation encourages training public Protection of Competition of Montenegro signed a Co-operation procurement staff in bid-rigging prevention and detection. Agreement with the Public Procurement Administration in Likewise, training competition officials on public procurement 2015. The Romanian Competition Council (RCC) compiled the law and practice allows them to build better enforcement cases, Bid-Rigging Module (MLT) in 2010. Under this structure, RCC that are more likely to correctly identify and prove the competition experts cooperate and exchange information with representatives offence and which will be able to withstand successfully judicial of the national regulator on public procurement, the National scrutiny. Council for Solving Complaints, the Prime Minister’s Control Body, the Romanian Court of Accounts, the Prosecutor’s Office

14 OECD Public Procurement Toolbox, Checklist for protecting competition when managing the risks of very low tenders, www.oecd.org/governance/procurement/toolbox/search/checklist-protecting-competition-managing-risks-very-low-tenders.pdf 15 www.oecd.org/fr/daf/concurrence/fighting-bid-rigging-in-the-health-sector-in-peru-a-review-of-public-procurement-at-essalud.htm attached to the High Court of Cassation and Justice (Romanian Supreme Court), and the Antifraud Division. These initiatives were often coupled with outreach initiatives aimed at raising competition culture and awareness. For example, the Serbian Commission for Protection of Competition organised several public events with other public authorities over the last few years, including public procurement officials. In 2019, the Georgian National Competition Agency held 26 seminars in the 11 regions of Georgia, in which the topic of cartels in public procurement was also highlighted.

4. Conclusions Efficient and effective public procurement is crucial to provide citizens with essential services. Competitive procedures are the most effective way to identify the best suppliers and obtain fair and reasonable prices, while fighting corruption. However, the outcome of the procurement procedures may be affected by bid rigging. We can expect that the recession caused by the Covid-19 crisis will further increase the relevance of robust public procurement. If the competition authorities are successful in their efforts to deter and detect bid rigging by a combination of enforcement and advocacy initiatives, they can help foster competitive markets and contribute to a quick, vigorous economic recovery. 13

Corruption, public procurement and competition in Eastern Europe and Central Asia The Case of the Energy sector in Ukraine

Olga Savran, Manager, Oleksandra Onysko, Anti-Corruption Network for Eastern Junior Anti-Corruption Analyst, Europe and Central Asia (ACN), OECD Anti-Corruption Division, OECD

corruption in the early years of economic transition. However, with growing public awareness and more transparent public data, e.g. through the disclosure of beneficiary ownership and investigative journalism, the spotlight has been on high- profile cases, which has made citizens aware of how high-level Tanya Khavanska, Legal Analyst at Anti-Corruption corruption works also by restricting competition. Division, OECD In this piece, we explore the workings of corruption through the bid rigging of public procurement in the energy market in Corruption has repeatedly been referred to as one of the Ukraine. The forthcoming OECD/ACN study of corruption reasons why the promised benefits of transition from a planned risks in the energy sector in Ukraine will shed more light on the economy to a free market did not reach the citizens of Eastern situation and will provide a typology of corrupt schemes used in Europe and Central Asia. Fighting corruption is an uphill this sector. struggle. Experience from several countries shows that petty or administrative corruption can be eliminated relatively easily It is common public knowledge in Ukraine that the energy through sectoral reforms and e-tools. High level political sector is controlled by oligarchs large and small. Oligarchs corruption is more difficult to tackle, since it is more difficult usually have ‘diverse portfolios’ and control companies in other to detect and to address through existing corruption prevention sectors, such as banking, transportation, agriculture, trade, and enforcement tools. Further, it is the high level corruption and main TV channels, known as industial-financial groups. that channels large amounts of public funds to those in power Oligarchs also control their own factions in Parliament and the and holds up economic and political development. 16 local administration. They have been able to capture the state, including law-enforcement and other control bodies. While at Public procurement has always been known as a high risk area the national level these oligarchs are in a permanent struggle for corruption, and not only in Eastern Europe and Central Asia. to control greater shares of different markets, at the regional Many studies have been pursued, and many tools designed to level different groups cooperate by sharing the profits of the prevent corruption in procurement. E-procurement is becoming exploitation of final consumers among themselves. For example, common in the region. In Ukraine, systems such as Prozzoro, according to the Anti-Monopoly Committee of Ukraine, the and its civil society twin Dozzoro, have created transparency losses for consumers in Ukaine’s energy market from increased and helped save significant amounts of public funds. But e-tools prices and tariffs by monopolies account for 20% of GDP.17 Such alone cannot eliminate corruption in public procurement, as oligarchic control in the energy sector leads to high prices for they too can be corrupted or circumvented by those holding consumers, underinvestment into socially significant projects, important positions. For example, the Government of Ukraine and reinforces corrupt elites’ control over both the economy and has decided by a Decree to implement a very large infrastructure politics. project outside the Prozorro system. What is the significance of these problems for competition Competition was not as central to public debates in the region as authorities? At first glance, competition is about preventing cartels

16 https://www.oecd.org/corruption/acn/Anti-Corruption-Reforms-Eastern-Europe-Central-Asia-2016-2019-ENG.pdf, page 15 17 https://www.oecd.org/corruption/acn/Anti-Corruption-Reforms-Eastern-Europe-Central-Asia-2016-2019-ENG.pdf, page 164 14

and market power, not about bribes, while public procurement of the transformers was reduced to UAH 928 million. ZTR is about the effective use of public funds for state needs, and – the company that had originally bid – still won, but, due to anticorruption rules applicable to high level andpolitical officials transparent and competitive procedures, the price paid by the and political parties are enforced by specialised bodies. Anti- State fell to the market level. corruption, procurement and competition experts rarely find common grounds for cooperation, as they act for different public Afterwards, ZTR still won a number of other Ukrenergo tenders bodies and use different legal tools. And yet, the links between conducted through the negotiation procedure, in which ZTR high level corruption and competition are strong and detrimental was the only bidder. Ukrenergo explained that a negotiation to society. This is made particularly clear by a case concerning procedure was necessary for technical reasons. Eventually transformers that was reported in the Ukrainian media. management changed, the transparency of Ukrenergo’s tenders increased, and now this SOE buys the same services and products In May 2015, the state-owned company NPC Ukrenergo much cheaper than other players on the market.18 announced tenders for the purchase of 27 transformers for 4,95 bln UAH. The purchase was supposed to be part of Ukrenergo’s What are the challenges for anti-corruption, competition and Investment Programme, which was approved by the energy procurement and other controlling bodies to join their forces sector regulator, the National Energy and Utilities Regulatory in order to prevent or sanction such behaviour using their Commission (NEURC), only in July 2015. Foreign companies powers and resources? As noted above, they operate within did not participate in the tender, which was announced before different legal and institutional frameworks, and communication NEURC’s (unexpected) approval, in part because it was between them is not well established. For example, during the financially risky to participate in a tender for which money had anti-corruption monitoring of Ukraine by the ACN, we did not not been allocated from the budget. The Ukrainian company see references to information from competition authorities as “Zaporizhtransformator” (ZTR) won a bid in which the price a regular intelligence source for opening criminal proceedings. of the transformers was much higher than the average market Other reasons relate to the lack of independence, capacity and price. In effect, in February 2015 “Zaporizhtransformator” transparency of these bodies, which are key factors to enable exported the same type of transformers to Russia at a price that them to implement their mandates without pressure from was almost seven times lower. corrupt elites.

The possible embezzlement of almost 2 billion UAH created a Going forward media scandal. The case was detected by a civil society group Very often corruption and competition issues go hand in and investigative journalists. When the scandal broke, the hand. Morever, without the bribery of public officials or of the Anti-Monopoly Committee of Ukraine (AMCU) annulled the company’s top management, it would even be impossible to results of the tender for violation of the legislation on protection break competition rules in some cases. At the same time, lack of of economic competition by a successful bidder. The Kyiv competition allows corruption to flourish. Prosecutor office started criminal proceedings for embezzlement, misappropriation of public funds and abuse of office. Both corruption and bid rigging in public procurement are difficult to prove due to the secretive nature of such arrangements After NEURC’s approval of the Ukrenergo’s Investment and the parties efforts to conceal them. Therefore, it is essential Programme, Ukrenergo announced a new tender for the to create mechanisms to improve the fight against such purchase of 22 transformers at 2 billion UAH, despite it being arrangements and improve coordination between enforcement technically impossible to install even 6 transformers per year. bodies.

Since the AMCU prevented the acceptance of ZTR’s proposal, in One clear such mechanism would be to oblige competition, public October 2015 changes were made to the tender documentation, procurement or anticorruption authorities to alert each other the subject of procurement was divided into 3 lots, and when one of them discovers in the course of an investigation that qualification requirements were improved so as to stimulate the there is a ground for suspicion of corruption or bid rigging. In participation of foreign manufacturers. As a result, well-known Ukraine, such cooperation works only one way at present: the manufacturers such as Siemens, ABB, Alstom, Kvant-Service AMCU launches (or not) investigations based on the reports (represented Hyundai) and Daewoo were invited to bid. After submitted by the National Anti-Corruption Bureau of Ukraine the results of the first tender were cancelled, the tender value (NABU), while competition authorities usually do not notify anti-

18 https://expro.com.ua/en/articles/ukrenergo-case-successful-corporate-experience-vs-political-accusations corruption colleagues of any cases which could fall within their competence. Some sort of mandatory reporting by competition authorities to the anti-corrutpion bodies would increase the level of detection of corrupt activities in public procurement. It is also important to facilitate the use of investigative materials gathered by one of the authorities as evidence by another body investigating the same practice.

Joint trainings for staff of the anti-corruption law enforcement agencies and of the competition regulator would help create links between the relevant authorities and strengthen inter-agency cooperation. This may help avoid cases like the one where, e.g. in April 2021, the Kyiv District Administrative Court declared illegal the AMCU’s procedural acts in a lawsuit against Ukrnafta because the AMCU had used data from the pre-trial investigation conducted by the NABU.

Tackling corruption in Ukrainian courts is yet another challenge which is of the utmost importance to address. In addition, cooperation between procurement, audit and compliance colleagues at company-level is of paramount importance. It is in the interest of each company to make staff of these departments work as partners. In particular, if internal auditors or the procurement team pinpoint any possible fraud, they should pass on relevant information to the company’s anti- corruption unit. 16

Tackling bid rigging in Serbia B2M – A recent success story

Maja Dobrić, Miki Vidaković, Independent Adviser, Senior Adviser, Commission for Commission for Protection of Competition, Protection of Competition, Serbia Serbia

electronic system of public procurement and the newly improved Introduction publicly available Public Procurement Portal, launched in 2020, Public procurement amounts to approximately 8%19 of Serbia’s have significantly increased transparency of biding outcomes and GDP annually, making these markets a strategically important can be expected to aid the CPC in its efforts to tackle collusion segment for continuous activities and efforts of the Commission in these markets. for Protection of Competition (CPC).20 The primary focus of the CPC in relation to public procurement Investigations and activities is preventing and resolving bid rigging and collusion between In addition to monitoring and enforcement activities, the CPC independent bidders, whereas issues of potential corruption has engaged in substantial advocacy activities when it comes and protecting bidders’ rights are forwarded to the competent to bid rigging. A decade ago, the CPC issued an instruction to authorities. procurers on how to detect possible rigged bids,22 based on the Bid rigging has been one of the key focuses of the CPC in ОECD Guidelines for fighting bid rigging in public procurement. the past decade and is considered one of the hardest forms of In order to raise awareness of potential forms of bid rigging, the competition infringements.21 Approximately one in five of the CPC has published various opinions on specific topics (such as CPC’s infringement decisions relates to public procurement, as consortium bidding, independent bids by related entities, urgent well as almost a third of competition-related court decisions. This procurement etc), brochures and educational pamphlets, as well kind of infringement has also been the first successful leniency as adapted short videos on fighting bid rigging.23 application at the CPC and the primary focus of the majority of In addition, over the past decade, representatives of the CPC both formal and informal complaints received by the CPC over the organised and participated in various roundtables, trainings and fifteen years of the authority’s existence. joint projects with the public procurement authorities in Serbia At the moment, the CPC has five ongoing bid-rigging as well as the Serbian Chamber of Commerce. investigations. B2M and others Changes to the legislative framework In a recent decision, the highest court in Serbia upheld a When it comes to the procurement process itself, the new Law decision in a bid rigging case involving several companies and a on Public Procurement in Serbia came into force in 2019 and complicated mechanism to rig the tender.24 regulates bidding terms in a slightly different manner than the The case originated following a complaint forwarded to the previous law, although the competencies of the CPC in light of CPC by the Public Procurement Office, involving a possible bid tackling competition infringements remain unchanged. rigging in tender for the procurement of consumable material The legislative changes seek to increase efficiency and competition for personal and collective hygiene by the Ministry of Defence. in public procurement procedures by reducing the administrative The tender was organised for a three-year period and divided burden and participation costs, while increasing transparency into 25 lots, according to the type of goods. The concept of this and efficiency in implementing public procurement. The new tender was very specific, as the Ministry of Defence intended to

19 Based on reports of the Public Procurement Office 20 The views expressed herein are those of the authors and do not necessarily reflect those of the CPC 21 CPC guidelines available in Serbian: http://www.kzk.gov.rs/kzk/wp-content/uploads/2011/11/NOVE-SMERNICE-MAJ-2011.pdf 22 Available in Serbian: http://www.kzk.gov.rs/kzk/wp-content/uploads/2011/08/Uputstvo-za-otkrivanje-namestenih-ponuda-u-postupku-javnih-nabavki.pdf 23 Videos were adapted in cooperation with the CMA 24 Decision no. 4/0-02-61/2018-26 of November 26, 2018, available here: http://www.kzk.gov.rs/kzk/wp-content/uploads/2019/01/26.11.2018-B2M-DECISI- ON-on-measures-for-protection-of-competition.pdf 17

procure goods for a three-year period at a value of approximately Most of the evidentiary material was found at B2M’s premises, 3,000,000 € + VAT. For each of the 25 lots, three most favourable including part of an uncompleted offer of a “satellite” company, bidders were chosen, and the most favourable of those three notes on price differences in offers of B2M and the “satellite” signed a 1-year contract. After the expiration of that contract, companies, documentation of “satellite” companies necessary for only those three bidders entered a new “mini-tender”, where they completing bids (including blanko memos and bank signature could not bid with less favourable conditions than in the initial files), as well as e-mail correspondence (on Gmail accounts) with bid. This complexity of the tender itself (in a manner that is not some other parties of the proceedings related to the submission envisaged by the Law on Public Procurement) had an impact on of tender offers. the theory of harm and the approach taken when resolving the Dawn raids on the premises of other parties were also fruitful, case. as the CPC not only gathered e-mail correspondence (on Gmail Upon acquiring and analysing excerpts from the minutes of the bid accounts) between B2M and a “satellite” company related to opening, copies of all the bids and other tender documentation, the bid submission, but also other material related to past a pattern emerged between the bidding strategies of several collusive tendering, which was helpful for studying the parties’ companies, which indicated possible collusion. A comparison of cooperation model. bids revealed a pattern containing the following: Raiding the premises of third parties was a good call, as one of the • certain companies had a very similar price and other trade employees of a “satellite” company used an e-mail of a third party conditions (price difference from 0.05 RSD to 0.10 RSD (affiliated company) to make consultations with B2M regarding (from 0.00042 € to 0.00084 €), whereas the price difference the contract signing for the tender after the most favourable between items was always the same, and offers contained the offers were selected. same offer validity period and delivery period); During the proceedings CPC took statements from • companies with the identified pattern appeared in groups of representatives of the parties for further clarifications. A court three, with B2M as the best offer among those companies; appointed expert in the field of graphoscopy was engaged in the • almost all bids had the same manufacturers of goods, for proceedings and determined with certainty that the same person each product; wrote prices on several pages of the submitted bid documentation • identical manufacturer specifications (usually given to of two “satellite” companies. bidders on request) were submitted; The gathered evidence enabled the CPC to confirm its theory of • bids submitted directly several minutes before the deadline; harm and establish the infringement for four companies, while • only the representative of B2M was present on the bid terminating proceedings against a company which no longer opening held just after the deadline. fit the pattern. Despite most of the evidence being indirect, the This pattern formed grounds for a reasonable assumption that CPC found that four companies had colluded to rig the tender. the tender had been rigged, and the CPC initiated ex officio Collusion between B2M and two “satellite” companies was proceedings against five companies under the presumption of proven with direct evidence (with indirect evidence filling the bid rigging; B2M was perceived as the leader of the group with gaps), while only indirect evidence was used to establish the four additional companies as “satellites”, appearing with B2M participation of the final “satellite”. The CPC found that all of the two at a time for each relevant lot and within the identified price evidence taken together in consideration amounted to collusive pattern. This kind of grouping ensured that these companies behaviour. would be the ones chosen initially and the ones that would bid in Administrative measures of protection of competition were the subsequent mini tenders. During the proceedings, the CPC imposed on the parties totalling 22.4 million RSD (cca 190,000 gathered both direct evidence and indirect evidence. €), out of which B2M had to pay 18.7 million RSD (cca 160,000 Upon initiating ex officio proceedings, the CPC conducted €). The decision of the CPC was confirmed by the Administrative synchronised and simultaneous dawn raids at the premises of Court and by the Supreme Court of Cassation. After the CPC’s five companies, three of which were parties of the proceedings decision became final, the Higher Public Prosecutor’s Office - and two of which were affiliated undertakings of parties. At the Special Department for the Suppression of Corruption requested time, this was the biggest dawn raid the CPC had conducted the case documentation for the purpose of criminal proceedings. and the first time premises of third parties were raided. Also, it was the first time the CPC entered premises that were used as a person’s home, as one of the companies was registered and operated from the home of one of the owners. During the dawn raids, the CPC gathered documents, statements and e-mails, which were subsequently used as evidence. Further steps and new challenges After the CPC decision becomes final, occasional checks of behaviour of companies that infringed competition are performed through the publicly available Public Procurement Portal, administrated by the Office for Public Procurement. With a completely new Public Procurement Portal launched in the second half of 2020, monitoring became easier with the increased transparency and the wider availability of information regarding awarded tenders and concluded agreements, as well as consortium bidding. This updated system should enable the CPC to gather publicly available information with more ease and significantly contribute to the effectiveness of investigations. The CPC has so far relied on expert witnesses in determining identical handwriting on several bids as a form of direct evidence of collusive tendering in multiple cases, which is why switching to electronically submitted bids could pose challenges when it comes to relying on this kind of evidence. However, given the extensive forensic training of case handlers and experience in dealing with digital evidence, as well as the transparency benefits of the new system, any potential shortcomings of the new system should easily be overcome. As an unexpected benefit, the significantly increased transparency and ease of access to information may act as deterrents in themselves when it comes to bid rigging. 19

Fight against bid-rigging in Romania –highlights of the recent enforcement and advocacy activity of the Romanian Competition Council

Oana Neg, Irina Popovici, Deputy Project Manager, Head of Cartel Unit, Big Data Project, Competition Council of Romania Competition Council of Romania

founded the Bid-Rigging Module (MLT) in 2010. Under this Introduction structure, RCC experts cooperate and exchange information with Bid rigging has for many years been the subject of particular representatives of the national regulator on public procurement attention in Romania, in line with a broader trend to focus on (ANAP), the National Council for Solving Complaints, the Prime fraud and organised crime in connection with public tenders Minister’s Control Body, the Romanian Court of Accounts, the and the use of public resources. Since 2010, the Romanian Prosecutor’s Office attached to the High Court of Cassation and Competition Council (RCC) has had a specialised unit dedicated Justice (Romanian Supreme Court), and the Antifraud Division. to bid rigging. Its main tasks are the investigation of alleged Within the cooperation with the ANAP, the RCC contributed procurement cartels, co operation with other government to the reform of the Public Procurement Law; the new law institutions investigating unlawful procurement activities and entered into force in 2016. In its current form, the law has a advocating on the risks of bid rigging and measures to reduce series of provisions which have contributed to the advocacy and those risks. enforcement efforts of the RCC. However, recent technological advances and economic dynamics First, it stipulates a series of mandatory grounds for exclusion have also been reflected in the behaviour adopted by some from public procurement procedures for companies whose companies, which have proven to be creative when pursuing the performance in previous tenders/contracts was suboptimal or goal of maximising their profit using unlawful means. As a direct whose actions may raise suspicions about their integrity. Among consequence, the RCC and other relevant national authorities these cases are situations in which companies have committed have been faced with the challenge of detecting new forms of bid- severe professional misconduct that casts doubt on their integrity, rigging and meeting the necessary standard of proof required by i.e. violations of competition law. The legislation mandates courts to demonstrate infringements and impose deterrent fines. that these violations be acknowledged by adequate means of Thus, in order to efficiently detect bid rigging, the RCC has proof, such as a decision of a court or administrative authority. prioritised the development of a systematic approach and Exclusion based on this ground operates for a three-year term methodology, as well the strengthening of cooperation between with important consequences on the activity of the companies national authorities. In addition to the regular toolbox of any concerned. To ensure the proportionality of the exclusion competition authority, in recent years the RCC has added to its measure in relation to each company, the law establishes the portfolio proactive instruments to identify bid rigging ex-officio, possibility of „self-cleaning” through concrete measures taken in such as cooperation with contracting authorities in evaluating order to prove credibility. suspect bids during the procurement stage or using Big Data Considering the important consequences of such an exclusion technologies to perform screening and to generate alerts. on the activity of economic operators, one important recent Ongoing projects pursued by the RCC include the use of a Big initiative taken by the ANAP and the RCC was to publish a joint Data platform to integrate the above-mentioned matrix as part opinion which aims to provide more guidance to contracting of an automatised process of detection, thus improving the authorities on ways in which companies may prove rehabilitation. detection ability of the RCC by generating so called “red flags” of In order to avoid any disproportionate exclusion from tenders, possible cartels in general and bid riggings, in particular. the contracting authorities have also the possibility to seek specific guidance from the RCC on the case at hand.Second, Cooperation with other authorities the law introduces the possibility for contracting authorities to In order to detect rigged bids, the competition authority seek guidance from the RCC also on evaluating suspect bids cooperates with other public authorities and, for this purpose, in ongoing procurement procedures. The RCC opinion is not mandatory, so the decision to act upon our advice lies with 20

the contracting authority. On the other hand, the RCC retains Based on the preliminary work done at the start of the project, discretion to open an investigation if new elements of the case which included a collaboration with a team of academics and a arise later on. review of the initial list of algorithms developed internally, the Although at first this setup might have looked very resource- Big Data system is designed to signal three main categories of red intensive for RCC, this legal provision proved to yield benefits flags for the bid rigging analysis (depending on the quality and for both contracting authorities and the competition authority, availability of data). since experience showed that what is obvious for one authority Price based might not be obvious for another. It provided better awareness If bid prices are available, bid price distribution can flag high- for contracting authorities, while bringing a lot of insight into the risk tenders. For example, constant price differences between public procurement cases for the RCC, which gained access to a the lowest bids, and extremely small, or extremely high bid price lot of specific aspects, documents and data for ulterior screening. ranges can signal coordinated prices. Some of these opinions later led to bid rigging investigations. Bidding patterns Bidding patterns can flag some of the most elementary rigging Screening public procurement procedures – the techniques, like withheld bids. For example, an increased share Big Data project of single-bidder contracts in a given region or a sudden drop of In order to fight abuse in public procurement, Romania put the number of bids received in a market from one year to another the introduction and implementation of e-procurement on are indicators that are calculable and traceable over time in an the top of its list of priority reforms. As a result, since January automated way. 2007, all public procurement announcements of the Romanian Market structure government have to be published on the national portal Data on public contracts contain key market characteristics “e-Licitatie” (www.e-licitatie.ro) and are transferred to the such as product or regional codes. While both have inaccuracies EU Official Journal. It has hence become easier and faster for (for example, buyers often fail to categorise their tenders to the companies in Romania to participate in public procurement by corresponding codes, categories are also not accurate enough), simplifying access to information and to the bidding process, they allow categorising tenders into markets. High or increasing which is especially important for SMEs. It has also provided market concentration or overly stable market structures can authorities in the Bid Rigging Module with an important source flag coordinated bidding - especially if they are associated with of information for monitoring the public procurement market. increased contract level risks. Most of the statistics and indicators (especially the automatically With the emergence of Big Data technologies, given that the calculated ones) are based on public procurement data. The RCC has access to the data stored in the national portal, the RCC variables that are useful to filter the relevant subsets of contracts saw new opportunities of analysis, which required new methods are the following: to identify, collect, structure and analyse data. • CPV code After some preliminary attempts at designing a simpler system • Geographical area - based on NUTS-codes, buyer city or for creating bid rigging alerts based on e-procurement data, in postal code 2018 the RCC started implementing a Big Data project. The Big • Contract size - based on final contract size or estimated Data platform is intended to create faster, better and pro-active contract size decision making by making use of screening tools in: bid-rigging • Tender date - call for tender publication date or contract screening, cartel screening and advanced analytics, merger award publication date control with a focus on properly identifying control holders • Companies - based on company names or company IDs or previously un-notified transactions, sector inquiries for the • Buyer name - based on buyer names or company IDs structural assessment of industry sectors to flag industries which • Procedure type are more prone to collusive practices, and networks of firms for • Bid status: winning/losing bid the use of social networks to identify structures or connections • Tender/contract ID between firms that may go undetected by traditional analytic Further dimensions that are useful filters include, among others: tools (with considerable less resources). Ȗ Company financial statistics The system will also give the possibility to streamline and Ȗ Company management (e.g. filter companies that are linked automate internal processes/business flows of the authority, to to the same managers even if not at the same time) have shorter administrative procedures, efficient resource and Ȗ Company ownership (e.g. filter companies that have explicit knowledge management and it will be capable of processing cross-ownership links) large amounts of structured and unstructured data. Examples of bid rigging cases to the final consumer in the electricity invoice. Relatively recent cases at the level of the Romanian market The RCC imposed fines totalling approx. EUR 15.8 million. demonstrated that some undertakings are able to adapt their Another relevant example illustrating the adaptive behaviour of strategy and manifest their interest to be involved from the first companies when it comes to eluding the competitive process is stages of drafting the requirements of the public procurement the case concerning the construction and repair of the streets of procedure. This early involvement gives them the possibility to Pitesti County. introduce limiting criteria that would favour them and would In 2018, the local public contracting authority (the Public exclude other competing companies from the process. Once Domain Administration of Pitești) issued the documentation competitive pressure is removed, it is easier for the involved and opened the procedure for the public acquisition of relevant companies to create and maintain a stable environment for services. In order to stimulate competition and encourage their anticompetitive agreement and to share contracts between SMEs to participate, the public procedure was split into five themselves, at the highest price. lots. During the investigation, the RCC found that 5 companies A relevant example is the case concerning electric meters in (Construct Steel Market S.R.L., Construcții Drumuri și Lucrări Romania. The RCC discovered that during a long period (2008- de Artă S.R.L., Comesad Drumuri S.R.L., General Trust Argeș 2015), within the process of public tenders organised mainly by S.R.L., Selca S.A) had replaced the normal competitive approach Electrica for the acquisition of electric meters, the undertakings with an agreement infringing competition rules by forming AEM S.A., ENERGOBIT S.A., ELSTER ROMETRICS S.R.L., an apparently legal association which become the sole bidder LANDIS+GYR AG and ECRO S.R.L. replaced the competitive for each of the lots. In reality, the execution of the contracts process with an anticompetitive agreement through which they corresponding to each of the five lots was performed by each shared the contracts, including when the organiser split the company that was part of the association. The price of the single contracts into lots, and agreed not compete against each other. bid for each lot was at the maximum amount offered by the In each case where they were the only bidders, they offered contracting authority. the highest price for their bids, close to the maximum amount The RCC determined that the companies had infringed afforded by the contracting authority. Each time the presence of competition law and applied a total fine of approx. EUR another company outside their agreement was announced, their 468.000. It is important to mention that three of the companies financial offers dropped by up to 40% in order to ensure success acknowledged their participation in the cartel and settled with and discourage any attempt of external competition. During the the RCC, benefitting from a reduction of the fine. infringement time, the involved undertakings also used bilateral contracts for selling and buying electric meters between them as a compensation mechanism. Their behaviour lasted for more than 7 years and was facilitated by some employees of the contracting authority. It is worth mentioning that the higher costs resulted from the bid-rigging were not borne by the contracting authority but were passed on 22

Bid-rigging in Ukraine: Flavoured products activities occur in various markets and in the course of public procurement for budget funds. As a general rule, bid-rigging in public procurement ends with the imposition of multimillion fines by the Committee on the violators. What is important, besides the punishment in the form of a fine, the decision of the Committee deprives violators of the right to participate in public Ms. Olga Nechytailo, State Commissioner, procurement for 3 years. Antimonopoly Committee of Ukraine A striking example of this can be seen in the following case. According to the decision of the Antimonopoly Committee The topic of procurement for the needs of the military- of Ukraine dated 04.04.2019 № 200-р,25 the actions of PE defence sector has been one of the leading in the media space „ZBALANSOVANE KHARCHUVANNIA”, LLC „STIL HLOBAL in recent years. In our army, the needs have increased several KALM”, LLC „VIYSKTORH”, LLC „UKRPRODAKORD OR”, LLC times, even tenfold. Therefore, the transition in 2016 to an open „PRODVSESVIT”, LLC „STATPOSTACH”, LLC „ARTA-HRUP”, procurement system has already yielded considerable positive LLC „STRATTON INFO” (LLC „AVIKA”), LLC „HEUS-HRUP”, results. The Ministry of Defence immediately became the LLC „REKTAN”, LLC „TRANS LOHISTYK TSENTR”, LLC leader, in general, in terms of budget savings and transactions „LATORITSA-TEMP”, PE „ARTEK-SOIUZ”, LLC „VALETA S”, concluded among the ProZorro participants after this system LLC „REHIONALNA KEYTERYNHOVA KOMPANIIA”, LLC started working. „OLMIRA”, PE „INTERA”, LLC „VIZYT”, LLC „PYRIATYNSKIY Thus, the Law of Ukraine, which coordinates public DELIKATES”, LLC „STRATTON SILVER” (LLC „VKF „SAVA”), procurement, requires procurement procedures to be carried LLC „CHAS MRIY”, and LLC „IMPEL GRIFFIN GROUP” were out through the electronic procurement system ProZorro. The recognised as amounting to violations of the legislation on the main goal of the ProZorro electronic public procurement system protection of economic competition, provided for in paragraph is to prevent corruption by increasing market transparency and 4 of part two of Article 6 and paragraph 1 of Article 50 of the creating a competitive environment for obtaining the best offer. Law of Ukraine „On Protection of Economic Competition”, in The electronic public procurement system allows the participants the form of anti-competitive concerted actions concerning of the procedure to take part and compete for victory in the the distortion of seven tenders on contract catering in Kyiv, tender in an interactive real-time manner by using the interface Zhytomyr, Chernihiv, Poltava, Sumy, Cherkasy, Rivne, Ternopil, of the electronic platform. Khmelnytsky, Chernivtsi, Zakarpattia, Ivano-Frankivsk, Lviv, The e-procurement system is an effective means of Volyn, Kharkiv, Donetsk, Luhansk, Dnipropetrovsk, Zaporizhia detecting and combating corruption thanks to numerous tools and Kherson regions. for monitoring and analysing public procurement. Thus, all The defendants were fined a total of UAH 865 million procedural actions of participants and customers are strictly (almost USD 32 million26) for the violation. regulated by the law and are recorded by the system. All According to the results of the case, it was established information generated as a result of the purchase, including the that the concerned companies had distorted the results of six proposals submitted by the participants, is stored in ProZorro procurements, which was confirmed by the following facts. for 10 years and is available for public viewing. In addition, In total, 93 proposals were submitted to participate in the system is also unique in its structure, because it works in the tender, and 25 economic entities took part in it. Out of cooperation with three parties - the state, business and the public. the submitted proposals, 74 proposals were withdrawn by The introduction of the functionality of the ProZorro the participants. Participants refused to participate in the web portal allows the Antimonopoly Committee of Ukraine procurement procedure, withdrawing their offers, thus acting in (hereinafter – the Committee) to visually observe the progress of the interests of the winner of these tenders, which did not reduce the procurement procedure and identify signs that may indicate its price offer during the tender and had the highest price offer. possible bid-rigging. Hypothetically, the participants could have refused to participate An important area of the Committee’s work is to prevent in the tender if there were objective circumstances not related to violations related to anti-competitive concerted actions, or the existence of bid-rigging. However, in this case, such refusals, more simply, to prevent bid-rigging between companies. Such firstly, would not have a massive character, and secondly, the actions distort competition. At the same time, bid-rigging actions of the participants would not have been simultaneous

25 https://amcu.gov.ua/npas/rishennya-200-r-vid-04042019 26 According to the exchange rate of the National Bank of Ukraine as of the date of the decision. 23

and/or synchronous in time. „ARTEK-SOIUZ”. A specific circumstance indicating the coordination of This meant that the winning entity in each group dishonestly behaviour was the fact that in the case where participants won the relevant bid. participated in several tenders and then refused their offers In particular, during the investigation of the case it was – the letters of refusal to participate in negotiations of such established that in the aggregate evidence testify to the defendants’ participants were registered on one date or such participants anti-competitive concerted actions outside certain groups, in refused to participate by one letter for all tenders. particular: the existence of stable economic relations, and the Based on the results of the analysis and collection of presence of the founders of individual companies in different evidence in the case, it was established that the defendants, in determined groups. This together created the conditions for addition to general coordination during participation in the the coordination of behaviour between them and the groups to bidding, coordinated their actions within certain groups. For which they were assigned. the investigation of this case, some of the defendants were Thus, thanks to the digitalisation of public procurement divided into conditional groups, based on a combination of through the operation of the ProZorro web portal and other circumstances: electronic services created based on big data analysis, the officials Group І. LLC „VIZYT”, LLC „UKRPRODAKORD OR”, LLC of the Antimonopoly Committee of Ukraine have significantly „STATPOSTACH”, LLC „ARTA-HRUP”. strengthened their ability to identify indicators related to the Group ІІ. LLC „VKF „SAVA”, LLC „REHIONALNA violation of the legislation on the protection of economic KEYTERYNHOVA KOMPANIIA”, LLC „AVIKA”. competition in the form of anticompetitive concerted actions, Group ІІІ. LLC „TvRANS LOHISTYK TSENTR”, LLC in particular, by identifying relationships between bidders; „PRODVSESVIT”, LLC „VIYSKTORH”, LLC „CHAS MRIY”, evaluation of formal signs of a corruption; automatic search LLC „HEUS-HRUP”, LLC „REKTAN”. for purchases by CPV code; automatic search for information Group ІV. LLC „LATORITSA-TEMP”, LLC „VALETA S”, about suppliers, successful purchases and conditions of tender PE „ZBALANSOVANE KHARCHUVANNIA”, PE „ARTEK- documents; automatic constructor of approximate specifications SOIUZ”. of the subject of procurement etc.

According to the materials of the case – confirmed by the collected evidence and an economic analysis of the behaviour of the defendants – the following circumstances were identified: the refusal of the defendants to conclude contracts; synchronicity of the defendants; the presence of economic relations in the form of mutual settlements; interaction and the presence of common economic interests within the groups of respondents; the unity of interests of the defendants within certain groups on a territorial basis; the defendants were aware of the participation of each other in the bidding and agreed among themselves to behave in a manner that ensured victory in Bidding № 1 and № 2 – for LLC „VIZYT”, in Bidding № 3 and № 5 for - LLC „HEUS-HRUP”, in Bidding № 4 – for LLC „AVIKA”, and in Bidding № 6 – for PE 24

No smoke without fire or the curious case of proving cartels in public procurement in Georgia

Salome Kavtaradze, Economic Competition Protection Zinaida Chkhaidze, Department, Georgian National Legal Department, Georgian Competition Agency National Competition Agency

Introduction a tender proposal in order to ensure material gain or advantage, According to the annual report 2019 of the State Procurement which substantially prejudiced the legal interests of the Agency of Georgia, in 2019 the total amount of money spent on purchasing organisation. While working on the amendments, public procurements was 11% of GDP (5, 332, 804, 815 GEL). it was decided that it was unnecessary to retain the mentioned For a country like Georgia, with an emerging economy, these subparagraph independently, as other subparagraphs in Article numbers are significant. It also implies that even before the 7 were capable of tackling the bid rigging issue. Consequently, economic shock of the COVID-19, public procurement was an the mentioned subparagraph was removed as part of the attractive way to generate income for an increasing number of amendments, and nowadays all of the cases regarding bid rigging businesses. fall under the definition of restrictive agreements, decisions, and Since economic development in 2020 decreased due to the concerted practices (price-fixing, limiting production, markets, pandemic, public procurement acquired a whole new meaning technical development, or investments, sharing markets, etc.). and became more attractive for more companies. While this Moreover, with this amendment Article 7 of the Law of Georgia fact suggests that there might be more competition on the “On Competition” was brought into line with Article 101 of the market, it also means there might be more possibility for Treaty on the Functioning of the European Union. infringements. Conspiracies affecting public procurement can Furthermore, violation of the rules of public procurement is a be particularly harmful since these conspiracies take resources criminal offence. The respective rules are regulated by Article from purchasers and taxpayers, diminish public confidence 1951 of the Criminal Code of Georgia, according to which “In in the competitive process, and undermine the benefits of a the case of participation in the procedures provided for by the competitive marketplace.27 Consequently, fighting bid rigging Law of Georgia on Public Procurement, a preliminary agreement in public procurement is one of the priorities of the Georgian between the entities participating in a procurement process or National Competition Agency (hereinafter - Agency). any other agreement for gaining a material benefit or advantage With this article, we aim to share information about the for themselves or the other persons which results in a substantial investigation and advocacy initiatives of the Agency – including violation of the legitimate interests of the contracting agency shall the existing legal framework and cooperation with public be punished by a fine or house arrest for a term of six months to procurement body – aimed at preventing and tackling bid two years, or by imprisonment for up to two years.” rigging. Even though the Law of Georgia „on Competition” and Criminal Code of Georgia tackle the different aspects of infringements Legal Framework in public procurement, the Agency actively cooperates with the In 2020, Georgian Law on Competition underwent some major Prosecutors office of Georgia, since every proved infringement of amendments, which were aligned with best European practice. the Competition rules may also lead to a criminal offence. Amendments came into force on the 4th of November 2020. Before these amendments, Article 7 (restrictive agreements, Advocacy decisions, and concerted practices) of the Law of Georgia „On One of the main priorities of the Georgian National Competition Competition” included a subparagraph on the violation of Agency is to actively advocate competition policy – that is to competition rules in public procurement. More precisely, it was explain to the main stakeholders the benefits of proper and prohibited for undertakings or other parties participating in effective Competition Law and Policy enforcement. public procurement to agree among themselves on the terms of Cartels/bid rigging in public procurement is one of the Agency’s

27 OECD, Guidelines for Fighting Bid Rigging in Public Procurement, 1. Available at: https://www.oecd.org/daf/competition/cartels/42851044.pdf 25

main advocacy subjects. Unfortunately, the spread of COVID-19 were capable of fostering collusion. These characteristics were, took its toll on the organisation of the advocacy initiatives for example, the existence of a small number of companies, in 2020, but we can say that 2019, unlike 2020, was a fruitful little to almost no entry to the market, a constant, predictable year. For example, in 2019, with the support of GIZ (Deutsche flow of demand from the public sector, and repetitive bidding. Gesellschaft für Internationale Zusammenarbeit) seminars on Besides, the market is very transparent since the public tenders competition legislation and its enforcement issues were held for are announced/held via the electronic system, information about the representatives of the local self-government. In the framework bidders, bids, etc. is public. of the seminars, the topic of cartels in public procurement The investigation team definitely saw smoke, but we had to was also discussed. In total there were held 26 seminars in the make sure that there was an actual fire. We were lucky enough 11 regions of Georgia, attended by 780 participants. This was, to find that fire during the interviews we conducted when two so far, the biggest advocacy campaign to raise awareness about companies/respondents mentioned that the competitors had competition issues in public procurement, which hopefully will held a series of meetings during which they had discussed have tangible results and will reduce the risk of bid rigging. entering into a new market/participating in the tenders. Their confession was perfectly aligned with the behaviour of all the Case Study respondent companies on the relevant market/in public tenders. The Georgian National Competition Agency recently concluded The above-mentioned enabled the Agency to prove that the an investigation into a very complex case in which it proved a respondents (4 companies out of 7) had agreed and shared cartel in the free community canteen services related to public the market in public procurement. The Decision was recently procurement.28 partially challenged in court, and we are looking forward to the Before delving into the facts of the case, we would like to provide court’s ruling because the decision will also be very important you with some general background information. In Georgia, for future cases. socially vulnerable people are provided with free community canteen services (under certain conditions) daily. The relevant Conclusion city halls are responsible for procuring the mentioned services. As Benjamin Franklin said: “there is no kind of dishonesty into For example, in Tbilisi, the free community canteen services are which otherwise good people more easily and frequently fall procured by the territorial bodies of the Tbilisi City Hall - Tbilisi than that of defrauding the government.” The accuracy of these district administrations. In total, there are 10 administrations in words can be observed in the public procurement process, where the Tbilisi district. The canteen services are procured through otherwise good companies tend to easily and frequently try public tenders. The tender is announced/conducted once a year to manipulate the process for their gain. Since manipulations through the Georgian Electronic Government Procurement affecting public procurement can be particularly harmful, it is System. crucial that all relevant public institutions – and especially the In December 2019, an application submitted to the Agency competition authority – have in place effective mechanisms stated that seven undertakings participating and winning the (legal or practical) for preventing and tackling bid rigging. It free community canteen services tenders in Tbilisi had shared is extremely difficult for the competition authority to achieve the relevant market. In February 2020, the Agency launched an great goals in the fight against bid rigging when it is acting investigation against these undertakings. alone, as enforcement in most cases takes time. In this regard, In the course of the investigation, two facts in particular caught the importance of cooperation between the Georgian National the Agency’s attention. First, undertakings only participated (and Competition Agency and the State Procurement Agency of won, since in most cases they were the only participant) in the Georgia has to be highlighted, as it gives us the opportunity to public tenders that were specifically related to “their” districts. avoid the risks associated with infringements of competition law. These undertakings never competed with each other. Second, We do hope that the mentioned cooperation will become more because one company that won public tenders in three districts active so that we will have greater opportunities to prevent and could not fulfill its obligation, the relevant administrations were tackle bid rigging in public procurement. However, until this forced to terminate the contract with the company and announce takes place, in order to prevent bid rigging in public procurement a new public tender. Even though the strongest competitor the Agency shall continue to monitor public tenders and organise left the market and there was an opportunity to enter the new various advocacy events on this issue, as well as on the leniency market, only one company (out of 5) participated and won all topic with the active involvement of the business sector. three tenders. During the investigation, it was also established that characteristics of the relevant market (free community canteen services market)

28 Decision of the Georgian National Competition Agency of 9 March 2021, available at: https://competition.ge/decisions/anti-competitive-agreements/by-prohibition 26

Bid-rigging albanian case

Prof. Dr. Juliana Latifi, M.Sc. Mimoza Kodhelaj, Chairwoman Director Albanian Competition Authority Albanian Competition Authority

1. Legal bases 2. The bid-rigging case in the purchase of The Albanian law no. 9121/2003 “On competition Protection”, food procurement market for Nurseries and as amended, considers bid-rigging in any of the forms of bid- Kindergartens at the Municipality of Tirana rigging schemes – that is cover bidding, bid suppression, bid In March 2021, the General Directorate of Nurseries and rotation, market allocation – to be a violation of Article 4 of Kindergartens at the Municipality of Tirana submitted – through the law on “prohibited agreements”. The Albanian Competition an official letter – some findings to the ACA that were considered Authority (ACA) has the legal power to investigate and punish as suspicious violations of competition in the procurement bid-rigging cases. Furthermore, the ACA has in force the procedure concerning the „Purchase of food for 2021”, which was Guideline (2011)29 “Fighting bid-rigging in public procurement” divided into 5 (five) Lots. For the same procurement procedures, which is approximated to the same OECD Guideline of 2009. the Public Procurement Commission decided to suspend the Since 2019, the authority has a Memorandum of Understanding administrative review of complaints submitted by the economic with the Agency of Public Procurement, according to which both operators M.C.Catering and Eagle Cons and to request the institutions aim to cooperate on the fight against bid-rigging in ACA to initiate an administrative investigation regarding these public procurement procedures. Law no. 9643/2006 “On public findings, the results of which were to be sent to the Public Procurement”, as amended, and other sub-legal acts foresee that Procurement Commission at the end of the investigation. economic operators (undertakings) engaged in bid-rigging may The ACA evaluated the information provided by both the be excluded for up to 3 years from tendering in future bids. General Directorate of Nurseries and Kindergartens at the The Competition Commission may open a preliminary Municipality of Tirana and the Public Procurement Commission. investigation by itself or on the basis of a complaint submitted by In the procurement procedures where the economic operators other interested parties or institutions. Generally, a preliminary M.C.Catering and Eagle Cons participated, the ACA noticed investigation lasts 3 months. The Competition Commission that: may subsequently decide to open an in-depth investigation • Both economic operators bidding at the same Lot had the where there are signs of distortion of competition. In-depth same head office premises with a common address; investigations last up to 6 months. In prohibitive agreement • The statements of both operators revealed that the persons cases involving bid-rigging, in its decisions the Competition acting in the capacity of administrator and sole partner of Commission may impose fines, stipulate conditions and the respective operators (Eagle Cons and M.C. Catering) obligations, and provide recommendations to public institutions were brother and sister; and contracting authorities; alternatively, undertakings may • There was a small difference in the value between bids; voluntarily offer commitments. • Both economic operators, bidding at the same Lot, had The Regulation “On commitments procedures30” approved by authorised the same person to carry out the sampling Competition Commission Decision no.437/2016, determines the procedures at the Institute of Food Safety and Veterinary;The rules and procedures that apply in such cases. Undertakings may verification procedure of the samplings submitted by both submit commitments at any stage of the investigation procedures; bidders revealed that 16 out of 22 items were the same items, therefore, the ACA does not perform all procedural steps of the which had the same label, producer, and expiration date; investigation procedures. The Competition Commission takes After evaluating these documents, the ACA concluded that into consideration the commitments which become binding for the above-mentioned suspicious behaviour may give rise to undertakings upon their approval. competition concerns in the form of a covert bid-rigging scheme

29 http://caa.gov.al/uploads/publications/brochure.pdf 30 Approximated with EC Regulation No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1, 4.1.2003, p. 1–25) (32003R0001); EC Antitrust Manual Procedures 2012, EC Notice “On best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU” (2011/C 308/06) 27

between Eagle Cons and M.C.Catering economic operators, conducts which violate law no. 9121/2003; participants in the food procurement procedure conducted by the 2. The undertakings operated and will operate with their Contracting Authority, the General Directorate of Nurseries and employees, independently as above; Kindergartens at the Municipality of Tirana, and may constitute 3. Given that the shareholders of both undertakings are the prevention, restriction or distortion of competition under family, namely brother and sister, in compliance with law no. Article 4 of the law no. 9121/2003; consequently, the ACA held 9121/2003, to avoid any misunderstanding, the undertakings that the behaviour should be investigated. commit to not bid in any procurement procedure according to the object of activity of the respective undertakings, simultaneously Given this situation, the Competition Commission decided to with two different bids, even though they are two undertakings open a preliminary investigation through decision no.785 dated that are independent from each other. 25.03.2021 “On the opening of the preliminary investigation in the procurement market concerning the „Purchase of food for 2021”, The above commitments have been taken by the undertakings Lot I, Lot IV and Lot V, conducted by the Contracting Authority, under investigation for the future. The commitments are the General Directorate of Nurseries and Kindergartens at the clear, self-executing, and have been voluntarily filed by the Municipality of Tirana”. The investigation would have lasted 3 undertakings. months. The commitments voluntarily offered by the undertakings M.C. The ACA performed the necessary dawn raids on both operators, Catering and Eagle Cons were assessed by the Competition sent a Request for Information to the above institutions, and Commission as appropriate to eliminate the competition received documentation on bids from all other economic concerns, as the competition between undertakings in the operators bidding at the same procurement procedure. market becomes effective when these undertakings operate During the investigation, the General Directorate of Nurseries independently, without consultation, without communication and Kindergartens at the Municipality of Tirana deposited an and without making agreements with each other. Especially official letter stating that there is an emergency and extreme need when the undertakings commit to not bid simultaneously for the daily supply of food to nurseries and public kindergartens with two different competitive bids in the same procurement in Tirana and that he is waiting for the conclusion of the ACA’s procedure in procurement procedures relevant to their activities, investigation so that he can continue the procurement procedures. thereby ensuring the maintenance of effective competition in all Under these emergency circumstances, as well as taking into procurement markets where these undertakings bid. consideration that cases ending with commitments can bring The Competition Commission through decision no. 796 dated a rapid and effective change in the market, the ACA identified 29.4.2021 “On the closure of the preliminary investigation that the above competition concerns could be eliminated if in the public procurement market concerning the “Purchase undertakings would be willing to file commitments. of foods for 2021”, Lot I, Lot IV and Lot V, conducted by the In April 2021, the undertakings M.C. Catering and Eagle Contracting Authority, the General Directorate of Nurseries and Cons voluntarily submitted their commitments to address Kindergartens at the Municipality of Tirana, and the approval the competition concerns in the procurement market under of commitments as mandatory in the form of conditions and investigation, along with their immediate commitment to obligations for M.C.Catering and Eagle Cons” decided: fulfill these commitments. According to the statements of both • To close the preliminary investigation in the procurement undertakings, their behaviour in the procurement procedures market concerning the „Purchase of food for 2021”, Lot I, under investigation had been misinterpreted as a result of the Lot IV and Lot V, conducted by the Contracting Authority, family connection they have with each other. the General Directorate of Nurseries and Kindergartens at the Municipality of Tirana;To approve the commitments Specifically, the undertakings M.C. Catering and Eagle Cons filed by the undertakings M.C. Catering and Eagle Cons, as offered the following commitments: mandatory in the form of conditions and obligations. 1. The undertakings had and will bid independently, • To continuously monitor the implementation of this decision without consulting, communicating, agreeing or coordinating by the undertakings M.C. Catering and Eagle Cons and. bids with any other competitor, regarding: prices; methods; factors or formulas used for the calculation of the price; purpose or decision to submit or not submit a bid; submission of a bid that does not meet the requested specifications concerning the quality, quantity, specifications or other specific requirements related to products or services of the procurement procedure; 3. Final remarks The fight against bid-rigging is a challenge that needs essential cooperation between public institutions to find effective ways of detecting and prevent anti-competitive practices. From the undertakings’ perspective, filing commitments can be very attractive as they avoid in-depth investigations and potential fines, whereas from the competition authority’s perspective they can be used to remedy antitrust concerns. 29

New steps in the fight against bid rigging (Automotive procurement cartel) Introduction and methods to combat cartels in bidding and work to be done

Aidos Abdikarim, Bolat Sambetov, Chief expert, Investigation Department Deputy Chairman of Agency for of Agency for the Protection and the Protection and Development of Development of Competition of the Competition of the Republic of Kazakhstan Republic of Kazakhstan

In the Republic of Kazakhstan, the mechanism of antimonopoly experience and financial stability of suppliers of goods, use control over procurement and tendering has been in place since of conditional discounts dependent on work experience and the second half of 2018 in accordance with the instructions of the contributions to the state budget. First President of the Republic of Kazakhstan – N. Nazarbayev: anti-monopoly requirements for procurement and tendering Combating bid rigging have been introduced, administrative liability for their violation As to methods of combating bid rigging, there are two main has been determined, the antimonopoly agency has introduced mechanisms employed in Kazakhstan: a mechanism to monitor tenders for compliance with legislation 1. The so-called „Dawn Raids” - unannounced inspections for the protection of competition, including as regards collusion. by the antimonopoly authority, that is, without prior Over the past three years, more than 80 investigations of collusion notification of the market participants about the upcoming have been initiated, of which more than 45 have been related to inspections. These actions allow vital documents to be government procurement of medical equipment, vehicles, and obtained, such as e-mails or minutes of meetings, and the office equipment. The approach to identifying and suppressing detection of different competing bids on one and the same cartel agreements in purchases and through tenders has been computer and other facts indicating collusion. At the same developed. The total amount of contracts concluded through time, such visits allow groups of ordinary employees to be tender purchases, in which signs of collusion have been found, questioned about cooperation with other cartel participants. exceeds 100 billion tenge. In most cases, ordinary employees are not aware that these In a mixed economy the State, in making its purchases, acts as actions are illegal and can provide corroborating evidence of the largest consumer for a number of sectors of the economy, a cartel conspiracy. thus making procurement a powerful tool for supporting 2. „Leniency requests” - this method gives any cartel participant entrepreneurship. the right to voluntarily withdraw from the cartel agreement At the same time, the main principles of the current public with minimal consequences; the withdrawing cartel procurement system are optimised, resulting in the efficient participant may obtain a reduction of the administrative fine spending of money and fair competition among potential or even complete immunity from liability, if it cooperates suppliers. and submits substantial evidence to the antimonopoly The Presidential Decree has also defined, as the main goals of authority. Thus, a leniency policy is applied to such market the State’s competition policy, the implementation of measures entities. of state support for entrepreneurship in order to develop small At the same time, despite these enforcement methods, the and medium-sized businesses, support of the emergence of new introduction of procurement monitoring has demonstrated that market participants, along with ensuring equal access to public an increasing number of long-term collusive anti-competitive procurement. agreements (on average up to 2-3 years) are being established. In this regard, the following measures are being considered Currently tens and even hundreds of procurement contracts are to prevent bid rigging and increase the transparency of public obtained by one cartel. procurement: The National Chamber of Entrepreneurs of the Republic of • reduction of reasons for purchases from one source; Kazakhstan „Atameken” (hereinafter - NPP „Atameken”) • legislative approval of regulation for preliminary has implemented a project to create a portal for a Unified qualification criteria for access to tenders; Procurement Window, integrating together most of the • elimination of customer practice of consolidating lots; procurement portals of Kazakhstan. Currently the Agency for • increasing transparency in the requirements as regards work the Protection and Development of Competition of the Republic 30

of Kazakhstan, together with NPP Atameken, are developing participants (1.1 million dollars), along with the confiscation of within the framework of the Unified Procurement Window a the monopoly profit obtained as a result of monopolistic activities search system aimed at identifying cartels digitally. This system totalling another 16.4 million tenge (37.8 thousand dollars). will be a powerful tool for analysing and identifying conditions However, the administrative proceedings were terminated by of bid rigging, in particular by: the courts due to the large profit obtained, and a decision was • determining procurements where there is no competition taken that criminal action was justified. The case was sent to between suppliers; the law enforcement agencies of the Republic of Kazakhstan • identifying the same registration data of suppliers; for consideration of the possible criminal responsibility of the • analysing the purchases of certain suppliers; perpetrators. • analysing the average mediated price of goods; II. An investigation was carried out concerning the actions of • identifying purchases from two or more suppliers that have Gayardo-Auto LLP and GazKomTechnika LLP. It was established identical fixed IP addresses; that these market participants had participated in public • identifying purchases where certain suppliers did not offer procurement procedures for the retail supply of cars and trucks any price reduction from the amount initially allocated by from 2017 to 2020 and had distorted the results of these public the customer. procurement tenders through an anti-competitive agreement. Thus, these work products provide the antimonopoly authority Within the framework of this agreement, Gayardo-Auto LLP and of Kazakhstan with the possibility to keep pace with the current GazKomTechnika LLP reached an agreement on coordinated best practices for combating cartels at procurement tenders. joint participation in public procurement procedures, as evidenced by the following facts: Investigating transport vehicle tenders • identical IP addresses from which the application documents As a result of the legislative implementation of the procurement were submitted; monitoring mechanism in the second half of 2018, the following • similarity of the design and content of the company Charters, year two major investigations were launched into violations of the exacerbated by the presence of the same grammatical errors; competition protection legislation of the Republic of Kazakhstan • the bank guarantees were issued on the same day; in public procurement for the retail supply of cars and trucks. • applications were submitted on the same day, and the time I. Based on the results of the investigation in respect of Sky lapse between the two submissions was 1 minute; Motors LLP and GazKomTechnika LLP, it was established that • same representative and same chief accountant; from 2016 to 2018 these market entities, while participating in • technical specifications containing exactly the same texts; public procurement procedures for the retail supply of cars and • the offices were located at the same address. trucks, distorted the results of these public procurement tenders Consequently, on the basis of all the evidence presented, the by collusive anti-competitive agreements. antimonopoly body initiated administrative proceedings Under this agreement, Sky Motors LLP and GazKomTechnika resulting in the imposition of an administrative penalty in the LLP reached an agreement on coordinated joint participation amount of 3.4 billion tenge in total against the two market in public procurement procedures, which was proven by the entities (7.9 million dollars), along with the confiscation of the following facts: monopoly profit derived from monopolistic activities in the • identical IP addresses were used for submitting application amount of 17.4 million tenge (40.1 thousand dollars). documents; However, the administrative proceedings for this case were • similarity of the design and content of the company Charters, also terminated by the courts due to the large profit obtained, exacerbated by the presence of the same grammatical errors; and a decision was taken that criminal action was justified. The • applications on behalf of one employee for the two case was sent to the law enforcement agencies of the Republic organisations; of Kazakhstan for consideration of the possible criminal • testimony of company employees concerning pre-agreed responsibility of the perpetrators. conditions on the submission of an intentionally doomed to new suppliers. All of the above would be useful to minimise the lose offer by one of the partners; conditions conducive to cartel agreements at tender auctions. • technical specifications containing exactly the same texts; • location of offices at one address. Consequentially, on the basis of all the evidence presented, the antimonopoly body initiated administrative proceedings resulting in the imposition of an administrative penalty in the amount of 487.5 million tenge in total against the two market Conclusions Summing up, we can state with confidence that what is required is a reasonable combination of administrative measures, measures to create favourable conditions for equal access to public procurement for new players, further development of the public procurement sector, support for small and medium-sized businesses, and an increase in the number of potential. 32

Bid-rigging in Hungary: The basic principles of detecting public procurement collusion and the cooperation with public procurement bodies as part of the Public Procurement Authority resolves any legal disputes related to public procurement and design competition procedures.32 The Office of the Deputy State Secretary for Public Procurement Supervision of the Prime Minister’s Office supervises and Attila Karsay, oversees the public procurements and contracts of the budgetary Case Handler, Cartel Detection entities under the control and oversight of the Government, the Section, GVH institutions thereof, and certain business entities under state ownership, among others. Competition authorities around the world are dedicating The Hungarian Competition Authority conducts proceedings significant resources to uncovering restrictive agreements related with respect to cases related to competition law that fall within to public procurement. Certain authorities are using ‘old school’, its scope of competence pursuant to the provisions of Act LVII traditional investigation methods, while others are taking action of 1996 on the Prohibition of Unfair and Restrictive Market with the help of sophisticated statistical methods against the Practices, such as cartel and other restrictive agreements, most severe restrictive market practices. However, it is necessary antitrust cases, merger control, and certain cases connected to for the competent competition authority to acquire public consumer protection and economic advertising activities.33 procurement data and information in the most accurate manner possible and within the framework of appropriate cooperation The significance of cooperation with the Public Procurement arrangements in the case of all investigation methods, not only Authority and the Prime Minister’s Office is that these the two mentioned above. organisations are in the possession of documents related to The primary purpose of this article is to shed light on the extent public procurement that, after appropriate processing, may allow to which the parties on the public procurement and competition the Competition Authority to achieve important progress during authority sides are able to complement each other’s work beyond its own investigations. simple data exchange, thus improving the efficiency of budgetary In the period following April 2020, the Hungarian Competition spending and promoting market competition. Authority has been paying special attention to ensuring more effective cooperation with both the Public Procurement Authority The Hungarian public procurement system and the Prime Minister’s Office; new cooperation agreements In order to clarify the contents of this article, it is necessary to have been concluded and old ones renewed to achieve this goal. briefly describe the Hungarian public procurement system. In Hungary, the supervision and oversight of public procurement The establishment of cooperation arrangements procedures are performed by multiple authorities and with public procurement bodies governmental organisations; however, the primary objective of Like all specialised activities, public procurement procedures each of the following independent organisations is to fulfil the and cartels have their own experts as well. Therefore, it is not specified activities within their own scope of competence: The necessarily expected from a public procurement specialist Public Procurement Authority, the Office of the Deputy State to be fully up to date on the latest development shaping the Secretary for Public Procurement Supervision of the Prime mainstream thinking in competition law circles and vice versa; Minister’s Office, and the Hungarian Competition Authority. it is not expected from a competition law expert to conduct an The responsibilities of the Public Procurement Authority entire public procurement procedure while lacking the necessary are to effectively cooperate in the development of public experience in organising such matters. However, both parties procurement policy, as well as to facilitate and promote legal need to be aware of the basic concepts and schools of thought on public procurement behaviours pursuant to Act CXLIII of 2015 legal application with respect to the other field. on public procurement, thus ensuring the clear and transparent At the time of the first personal contact, it is definitely necessary spending of public funds.31 The Arbitration Committee operating for the competition authority to describe the essential workings

31 Source: https://www.kozbeszerzes.hu/kozbeszerzesi-szervezetek/#kozbeszerzesi-hatosag 32 Source: https://www.kozbeszerzes.hu/kozbeszerzesi-szervezetek/#kozbeszerzesi-dontobizottsag 33 Other authorities: The Government Control Office, the State Audit Office, the Directorate General for the Auditing of European Funds 33

of (public procurement) cartels and their most common forms; the procedure; therefore, the Arbitration Committee established although in the latter case, I would not recommend dogmatic that the contracting authority failed to comply with the trainings that strictly adhere to the textbook material. The reason obligations thereof concerning fair competition. Based on the for this is that the primary function of organisations dealing with point of view of the competition authority described earlier and public procurement is related to the orderly implementation of the above example, a difference in approaches is outlined, which public procurement procedures and not to the investigation and can be a source of the misunderstandings referred to above. comprehensive elimination of the associated cartel activities; Naturally, these are not differences that cannot be eliminated; therefore, they cannot be expected to dedicate significant human however, one of the parties definitely has to take the first step. resources to activities related to detection. In my opinion, the I consider clearing up the topic of undertakings belonging to appropriate results can be achieved by presenting practical the same group or being independent from each other similarly examples and cases that are easy to judge on the basis of whether important. It is not necessary for public procurement bodies bid rigging behaviours were certainly observed or not. The aim to perfectly understand the rules based on merger control of the competition authority in such cases can be to pass on provisions; however, they have to be aware of the fact that knowledge to the public procurement experts so that they are undertakings belonging to the same group cannot be considered able to detect and place into the appropriate context the most independent from each other; therefore, it is not possible for common bid rigging behaviours. I believe that these processes them to conclude a cartel agreement with each other from a can be best implemented within the framework of a supervisory competition law point of view. model incorporated into the processes themselves and not by searching for targeted cartel behaviours. The so-called red flags Collection of relevant information can prove helpful in this task, which indicate typical public The collection of data is part of a process that allows us to draw procurement cartel activities. In addition to the GVH’s own appropriately substantiated conclusions in the end with respect detection and investigation activities, the primary source of such to a potential bid rigging behaviour. At this stage of the process, 34 red flags can also be the Guidelines compiled by the OECD. we are already past the preliminary screenings performed by public procurement bodies; however, this is not a perquisite I consider it an important factor to define bid rigging for requesting the appropriate documents. Based on my past behaviours correctly during such conversations, thus allowing experience, I do not consider it subservient to compile an misunderstandings to be avoided. Every branch of science and legal itemised list that contains all of the important documents to be field has its own terminology and set of technical terms; therefore, reviewed, as otherwise this experiment would not be completely the possibility of a misunderstanding cannot be excluded. Let’s objective due to the possible differences between legal systems imagine: perhaps the reader can also find expressions in their and public procurement environments. own first language which would have a different meaning in a My basic assumption rests on the idea that the colluding bidders, competition law and a public procurement context. In general, lacking a necessarily ‘cautious’ attitude, may commit some kind it can be said that the science of competition law has hijacked of mistake that may point to the existence of the restrictive certain terms from the following: anti-competitive, restriction of agreement. We have to rely on such mistakes and in order to competition (restrictive market practices), fair competition. As proceed, we must necessarily ‘come across them’. Since the illegal an expert familiar with competition law, I interpret these terms nature of collusion related to public procurement procedures is as clearly referring to behaviours of competing undertakings more and more well-known around business circles, the guilty that infringe competition law, primarily price-fixing, market parties are making more and more attempts to cover their sharing, and other restrictive agreements they concluded. On infringing behaviour, primarily through the destruction of the other hand, to an expert in public procurement, whether we evidence. are talking about a decision-maker, an inspector, or an organiser Based on the mistakes committed by the bidders, it is possible representing the contracting authority, the term ‘competition’ to identify similar ‘infected’ public procurement procedures, has a significantly wider meaning. reasonably expanding the scope of the investigation and While writing this article, the author visited the website of the shortening the list of undertakings potentially involved in the Arbitration Committee, explicitly looking for decisions labelled infringement. Certain more experienced colleagues working with the tag ‘competition’. In a decision selected randomly, at the competition authority may have already experienced the the contracting authority of the procedure applied suitability situation where public procurement procedures were identified requirements deemed unnecessary, which resulted in fewer that gave a strong indication of a rotating winner or any other market players (bidders) being able to submit valid bids during type of public procurement cartel or repeating pattern; however,

34 https://www.oecd.org/daf/competition/cartels/45263580.pdf 34

initiating a formal investigation was not a realistic option without larger the undertaking participating in a cartel is, the more it will a mistake being made by the bidders. try to protect itself, as part of which the implementation of the The collection of data and information that cannot be found cartel becomes nothing more than a means to an end. The latter in public databases or that are not directly accessible to the requirement should not be forgotten either, with special regard competition authority is an important part of the investigation to the unfair influence exerted on the contracting authorities, phase. The publicly available Hungarian public procurement which is aimed at restricting competition in a wider sense. In database (the Electronic Public Procurement System and for my opinion, any form of bid rigging behaviour thus constitutes public procurement contracts, the CoRe) includes the following a part of a larger whole; therefore, my colleagues working at important documents: the invitation to tender/participate, the competition authority cannot forego understanding the big amendments; preliminary dispute resolution requests; summary, picture, which allows their own investigations to be placed in an decisions of the contracting authority; contract. This list shows appropriate context as well. that neither the bids, nor the supplementary data provided are We must also discuss the topic of evidence and the evaluation public, even though the preparation of these requires the greatest thereof. The competition authorities of the EEA Member States level of autonomy on the part of the bidders. Experience shows are developing detection methods based on statistical calculations that errors can be found most easily in documents prepared more and more frequently. The Swedish and Swiss competition with larger autonomy. More complex procedures include a authorities have especially achieved impressive results with these large amount of documents; however, the majority of these are methods. In this regard, it emerges as another question how the irrelevant in terms of detecting bid rigging behaviours. One of decision-making bodies dealing with a bid rigging case, such as the effects of appropriately cooperating with public procurement the competition council operating within the GVH and later the bodies could be that the organisations involved would no longer court in the case of Hungary, evaluate the detected patterns. overwhelm each other with unnecessary data requests and The Hungarian case law follows a more conservative but more irrelevant documents. substantiated direction with respect to this issue by not accepting, Based on the experiences of the last few years, procurement as evidence, mathematical/statistical calculations that appear too procedures the value of which does not reach the minimum abstract. An approach similar to the procedural principle of in threshold required for the initiation of a public procurement dubio pro reo is strictly in effect within the Hungarian legal system procedure may be considered a significant blind spot. In the since courts are only willing to accept direct or very clear indirect Hungarian legal system, this does not mean that the procurement evidence as a basis for the guilt of an undertaking. Although procedure can be performed without any competition patterns and mistakes made by bidders reinforce assumptions whatsoever; however, bidders are not required to provide the and can imply an infringement, in themselves, they do not have level of transparency mandated in the case of regular public sufficient and ‘final’ probative force. The Hungarian courts so far procurement procedures. The detection of ‘infected’ procedures have been less open to evidence based purely on natural science is perhaps the most complicated here; it is frequent for such and statistics; however, this has primarily historical reasons. procurements to enter the field of view of the competition My conclusion is that competition authorities definitely have to authority only after the formal procedure has already been base their evidence-collection process on proof that ensures that initiated. an actually infringing behaviour can clearly be attributed to one Based on the above, a clear conclusion can be drawn. As I have of the involved undertakings (e.g. email, text messages, metadata) alluded to earlier, the undertakings and individuals participating since only these provide sufficient certainty. The supporting role in bid rigging are becoming more and more cautious and and acceptance of mathematical/statistical patterns is increasing careful and they are able to destroy any evidence suggesting an day by day; however, they are not yet capable of reaching the infringement, at least until the competition authority knocks on certainty of a ‘smoking gun’. their door during a dawn raid. We can also be certain that the 35

The Hellenic Competition Commission’s practice in bid-rigging cartels in the construction sector

Lefkothea Nteka, Kelly Benetatou, Partner, D.K. Avgitidis & Associates Law Vice-President, Hellenic Competition Firm, Ex Commissioner- Rapporteur, Commission Hellenic Competition Commission

Introduction The bid-rigging cartel for high value tenders Already since the inception of the economic crisis faced by The bid-rigging cartel case for high value tenders is the biggest the Greek economy in the period 2010-2019, the Hellenic cartel case that the HCC has dealt with so far. The Authority Competition Commission (HCC) reshaped its strategic imposed the highest total amount of fines so far in the context of objectives and re-aligned its priorities, among others, as to the one case, €82 million to settling parties and €20 million to non- sectors of the economy to be investigated. 35 settling parties, and the largest fine on one single undertaking, Bid-rigging practices in tenders for construction works became a €38.5 million. Moreover, it is the first case where it successfully top priority. On the one hand, road building played an important applied its leniency programme and initiated a settlement role in the economic growth of Greece; the proper development procedure. Furthermore, it is the first case where the HCC of the transport network could lead to significant reductions in granted fine reductions to two construction groups, after having the cost of transportation and boost the integration of various thoroughly assessed their applications invoking their inability to regions within the country. pay. On the other hand, inefficient or non-competitive public In particular, at the beginning of 2013, following several news procurement tenders had a significant cost for the state budget. articles alleging collusion between companies in the Greek Greek public authorities are the principal buyers of construction construction sector, the HCC conducted on-site inspections and infrastructure building services. In 2019, approximately at the premises of several construction groups in order to 9.3% of GDP (around €20 billion per year) was spent by the investigate collusive tendering in high value public infrastructure Greek public authorities on the purchase of construction projects. Several critical pieces of evidence were gathered during services and works, while at the EU level the total expenditure the on-site inspections, such as the diaries of two high ranking on public procurement amounts to approximately €2 trillion per employees of one of the construction groups under investigation, year (around 14% of GDP).36 According to estimates, improving which detailed meetings of the tenderers (participants, dates, public procurement systems can yield significant savings as even tenders, allocation of projects, etc); tables assigning rights, a 1% efficiency gain could save up to €20 billion per year at the amounts, and percentages to the construction groups involved in EU level.37 the allocation of tenders; and signed subcontracting agreements Against this background, the HCC initiated several investigations bearing blanks where essential elements of the contracts should in public tenders for infrastructure works, sustaining thus have been mentioned, such as the dates of the subcontracts, a long line of cases in the construction sector. It has since and the number and the dates of the contracts signed with the issued 8 decisions on 6 cases regarding bid-rigging practices in procurement authority. These contracts, signed prior to the public tenders. Three of the cases investigated concerned the submission of the bids, were granted to cover bidders, as a form construction sector, and in two of them settlement decisions of compensation or even as a safeguard in case the designated were adopted under the settlement procedure for settling parties. winning bidder did not abide by the pre-agreed rotation or The total fines imposed so far in all 6 cases amount to 102.9 distribution of additional profits. Moreover, over 500 gigabytes million Euros. of electronic files were collected, including e-mails. Enforcement efforts have been coupled with targeted advocacy A few days following the on-site inspections, one of the initiatives, such as the publication in 2014 of a “Guide for Public construction groups involved in the collusion schemes applied Procurement Authorities: Detection and Prevention of Collusive for leniency. A second round of targeted on-site inspections Practices in Procurement Tenders”. followed, with the aim of collecting specific evidence, including 35 The views expressed are personal and do not reflect the position of the Hellenic Competition Commission. 36 See European Semester Thematic Factsheet - Public Procurement, 2017. 37 Visit https://ec.europa.eu/defence-industry-space/funding-and-grants/public-procurement_en 36

records of the arrival and departure of high-ranking employees that had elapsed between the two major periods (2000-2005), of the construction groups under investigation at the offices of the construction sector in Greece had gone through a major re- one of the undertakings involved, which was the regular meeting shuffling, mainly after a wave of concentrations due to the then point of the tenderers during the latest period of the cartel. newly introduced more austere regulatory framework regarding The investigation focused notably on tenders for road construction, the classification of construction companies.39 As a result, the rail transport, metro rail, concession projects and public-private number of construction companies licensed to participate in partnerships (PPP) that took place over three decades starting in high value tenders diminished from approximately 40 to 10. 1981. Detailed data on tens of construction tenders were gathered According to the decisions, during the period from 1989 to 2000, from procurement authorities through requests for information the then forty construction companies licensed to participate in order to establish the timeline of the procurement procedures. in high value tenders coordinated their business conduct on The HCC requested information regarding, among others, the responses to invitations to tender, mainly for major highways, public announcement of the projects; the publication date of the by allocating among themselves, in rotation, then imminent tender invitations; the dates of the submission of the bids and public works; by agreeing, prior to the submission of the bids any relevant postponements; the identity of the winning bidders; in each tender which company would submit the winning bid; the identity of any subcontractors; and the stage and conclusion by submitting cover bids; and by suppressing bids. To more of the works. effectively achieve coordination in view of their number, the Extended depositions were given by the legal representatives construction companies involved were split into teams of equal and employees of the construction groups under investigation, capacity, based on their turnovers; assigned team-leaders; including the leniency applicant. divided high value invitations to tender in projects’ groups, The Statement of Objections, addressed to 60 construction according to the invitations’ anticipated publication time; and groups and companies, both Greek and European, was issued in allocated projects in two levels, first among the teams and then April 2016. It covered a period of 27 years. within each team. Shortly after the introduction of a settlement procedure for Projects were allocated based on a point system, under which cartels in Greece in May 2016, the key participants in the cartel, each company was entitled to a share of the value of each tender i.e. Greek construction groups of considerable size and expertise allocated between the members of the cartel (theoretical quota in public works, filed for settlement. Several smaller in size allocated to each team and each team-member). The size of the construction companies followed. The HCC initiated settlement share was calculated taking into consideration each company’s talks in September 2016. These were concluded in February turnover. Through bid rotation and priority lists, each company 2017, following over one hundred technical meetings between was allocated projects of a value equal to its theoretical quota the case-team and the representatives of the settling parties. under the point system. In case of deviations between theoretical The settlement decision was adopted in March 2017. In April- quotas and actual shares allocated, correction mechanisms were May 2017, the standard oral hearing process took place for the in place, mainly in the form of awarding subcontracts or setting- non-settling parties and the respective decision was adopted in up construction consortiums. July 2017. During the period from 2005-2012, the major Greek According to the decisions published in July 2018 and February construction companies and a few European companies 2019 respectively, the HCC found that two major collusion colluded to allocate tenders, notably for the metro rail projects schemes regarding tenders for public works of infrastructure of the period 2005-2006, the PPPs of the years 2008-2009 and had taken since the 1980s, the first spanning from 1989 to 2000 high value infrastructure works of the period 2011-2012. The 38 and the second from 2005 to 2012. Several other tenders were collusive scheme was implemented through regular meetings of the object of collusive tendering on one-off occasions, during the high-ranking employees of the Greek construction companies, years 1981-1988 and 2001-2002. while employees of European companies involved in the cartel According to the decisions, each of the two major collusion participated in fewer meetings. During these meetings, the schemes constituted a single and continuous infringement on cartelists agreed on which companies would form the designated account of, among others, the common allocation techniques winning consortium; drafted prior to each tender subcontracts used throughout each distinct period; the objectives pursued bearing no date, signed only by the winning consortium , as a (maintaining the status-quo and raising prices offered for public form of guarantee for cover bidders; and monitored the interest works); and the identity of the companies and their employees of any third company to participate in the tender. The value of having participated in the cartels’ meetings. During the five years the projects was allocated among them based on their turnover

38 For this period the HCC’s right to impose a fine had been time-barred. 39 In Greece, in order to participate in public tenders for works and designs, individuals and companies are required to belong to registries and register in categories depending on the nature of their activities (e.g. road works and hydraulic projects), their experience, staffing and financial standing. and market share, thus maintaining the status-quo. Metro rail in place, mainly in the form of awarding subcontracts or setting- projects were further allocated in such a way that at least one up construction consortiums.During the period from 2005-2012, metro rail project was assigned to each cartelist, as experience the major Greek construction companies and a few European in the construction of metro rail lines was deemed necessary for companies colluded to allocate tenders, notably for the metro rail participation in any future metro rail tenders. projects of the period 2005-2006, the PPPs of the years 2008-2009 According to the decisions, during the period from 1989 to 2000, and high value infrastructure works of the period 2011-2012. The the then forty construction companies licensed to participate collusive scheme was implemented through regular meetings of in high value tenders coordinated their business conduct on high-ranking employees of the Greek construction companies, responses to invitations to tender, mainly for major highways, while employees of European companies involved in the cartel by allocating among themselves, in rotation, then imminent participated in fewer meetings. During these meetings, the public works; by agreeing, prior to the submission of the bids cartelists agreed on which companies would form the designated in each tender which company would submit the winning bid; winning consortium; drafted prior to each tender subcontracts by submitting cover bids; and by suppressing bids. To more bearing no date, signed only by the winning consortium40, as a effectively achieve coordination in view of their number, the form of guarantee for cover bidders; and monitored the interest construction companies involved were split into teams of equal of any third company to participate in the tender. The value of capacity, based on their turnovers; assigned team-leaders; the projects was allocated among them based on their turnover divided high value invitations to tender in projects’ groups, and market share, thus maintaining the status-quo. Metro rail according to the invitations’ anticipated publication time; and projects were further allocated in such a way that at least one allocated projects in two levels, first among the teams and then metro rail project was assigned to each cartelist, as experience within each team. in the construction of metro rail lines was deemed necessary for Projects were allocated based on a point system, under which participation in any future metro rail tenders. each company was entitled to a share of the value of each tender allocated between the members of the cartel (theoretical quota Conclusion allocated to each team and each team-member). The size of the The subsequent cases investigated by the HCC demonstrated share was calculated taking into consideration each company’s that the bid-rigging practices identified above were widely spread turnover. Through bid rotation and priority lists, each company and occurred in all types of procurement procedures and in all was allocated projects of a value equal to its theoretical quota industries, irrespective of the size of the tenderers and the value under the point system. In case of deviations between theoretical of the contracts. quotas and actual shares allocated, correction mechanisms were

40 The subcontracts were handed over for safekeeping to one of the cover bidders. 38

An overview of the Hong Kong experience in fighting bid-rigging

The release of the study findings, which were consistent with public concern about pervasive bid manipulation activities, drew massive attention in the media and wider community. Riding on the noise created by it, the Campaign was rolled out with a TV announcement and brochures outlining common types of By Hong Kong Competition bid-rigging and tips for procurement officers to safeguard the Commission tender process. A series of educational videos were produced to facilitate easy understanding of these messages and a “Fighting Bid-rigging is one of the most common types of anti-competitive Bid-rigging Cartels” Information Centre was launched on the conduct around the world and it has long been a subject of Commission’s website featuring all relevant materials as a “one- grave public concern in Hong Kong, China. However, before stop shop” for all stakeholders. The Campaign was also supported the Competition Ordinance (Ordinance) came into full effect by extensive outdoor and online advertising in the city, agreeing not to compete on a tender was not illegal unless the agreement also included elements that contravened To further educate and reach out to the community, roving other laws (e.g. bribery or intimidation). The Ordinance imposes exhibitions were staged across the city. Thematic seminars a paradigm shift and requires certain changes to long standing on fighting bid-rigging cartels targeting different audiences business practices and business culture in Hong Kong. including procurement practitioners in both the private and public sectors, property management companies and property Since its inception, the Hong Kong Competition Commission owners were held in collaboration with professional bodies and (Commission) has spared no efforts in combating bid-rigging relevant government departments to spread the message. cartels not only through enforcement, but also through advocacy and policy advisory initiatives. This article outlines some of the As a further initiative of the Campaign, the Commission Commission’s major initiatives in tackling this deep-rooted published a set of model Non-collusion Clauses and Non- problem which may bring significant harm to consumers and collusive Certificate in December 2017 for procurers to the economy as a whole. incorporate into their tender documents and contracts so as to safeguard the procurement process against cartel conduct. Extensive outreach and advocacy on multiple platforms To sustain the impact, the Commission continuously reaches out Touching first on advocacy, which the Commission considers to property owners and building management personnel across to be particularly important at the introductory stage of a new the city by speaking at regular briefings on building renovation law. Since the enactment of the Ordinance, the Commission has and management organised by District Councils and Home been actively engaging the public and businesses through direct Affairs Department in different districts. The Commission has engagement, educational initiatives and thematic campaigns also been in collaboration with the Urban Renewal Authority and across multiple platforms, with the aim of raising community Buildings Department to give talks and workshops on effecting awareness and understanding of the Ordinance and encouraging tendering and building management. compliance. Enforcement Although bid-rigging cartels can occur in any market or The Commission’s advocacy efforts were successful, not only in sector where tender processes are used, the problem seemed raising public awareness, but also in bringing complaints of bid- to be particularly acute in the residential building renovation rigging to the Commission’s attention. A most notable example and maintenance sector in the city. This was reflected by is that of a procurement officer who attended a seminar by the anecdotal reports and other market intelligence received by Commission came and who a few days later approached the the Commission. Against this background, the Commission Commission with evidence of suspicious bidding behaviourin a conducted a study into certain aspects of the residential building tender they had just concluded, which eventually led to Hong renovation and maintenance market followed by a multi- Kong’s first competition case. pronged “Fighting Bid-rigging Cartels” Campaign in mid-2016. This first major advocacy project of the Commission aimed at raising public awareness of bid-rigging in general and educating on how to detect and prevent it. 39

That case involved five technology companies concerning a market sharing and price fixing. The Guide is also supplemented tender related to the supply and installation of a new IT system with a quick checklist as a first step to assist policymakers in for the Hong Kong Young Women’s Christian Association assessing the competition impacts of new, or existing, policies (YWCA). The Commission commenced proceedings in the and initiatives. Competition Tribunal (Tribunal) in March 2017. In May 2019, the Tribunal found four of the technology companies liable for Besides producing educational materials, the Commission, in contravening the Ordinance by engaging in bid-rigging, and the collaboration with the Government Logistics Department, held companies were ordered to pay a pecuniary penalty as well as the a seminar on safeguarding the procurement process for the Commission’s costs of proceedings in a judgment handed down government’s procurement staff. This was followed by a series of in December 2020. This case was notable not just for being the tailored workshops for the public sector led by two internationally Commission’s first case before the Tribunal but also for including renowned competition experts. Senior executives from the a form of vertical bid-rigging. The upstream supplier of the Commission also shared their experiences and perspectives on software was part of the bid-rigging arrangements by arranging competition law enforcement in Hong Kong. for the submission of dummy bids to ensure that the hardware provider they favoured was awarded the contract.41 It is also the Commission’s established practice to collaborate closely with relevant government departments, public bodies In March 2020, the Commission filed another cartel case which and other law enforcers to ensure that government procurement involved alleged price fixing, market sharing, and/or bid rigging programmes and initiatives are safeguarded from collusion. among some leading textbook retailers in the city in relation Most recently, in response to the COVID-19 pandemic, the to the sale of textbooks to local primary and secondary school Commission issued two statements to warn participants in the students. The Commission’s case is that the alleged arrangements, government’s anti-epidemic subsidy programmes about the which were arrived at prior to the full implementation of the importance of complying with the Ordinance and being vigilant Ordinance, were continued by the charged retailers after the against potential anticompetitive practices that may undermine Ordinance came into full effect. It is also the first time that procurement processes. The Commission also worked closely the Commission seeks to hold a parent company liable for its with public bodies which are tasked with administering these exercise of decisive influence over subsidiaries directly involved programmes to ensure that they take competition concerns into in the conduct.42 The case is currently at the interlocutory stage. consideration; furthermore, it provided advice and training on collusion prevention so that the public money being channelled Bid-rigging, being a form of cartel conduct and regarded as to alleviate the unusual hardship faced by the business sector will “Serious Anti-competitive Conduct” under the Ordinance, not be exploited by cartelists. remains an enforcement priority of the Commission. Looking ahead Policy advisory initiatives and public sector The Commission believes that its multi-pronged approach engagement in combining advocacy, enforcement and advisory efforts is As in other jurisdictions, public procurement accounts for a effective in the deterrence and detection of bid-rigging. The significant proportion of the demand for goods and services Commission’s early successes in the Tribunal have helped in the city’s economy and the activities and functions of the establish the foundations on which future cases can be built and public sector affect the daily lives of everyone in the territory. the Commission will use the full extent of its powers to end such It is therefore very important for public officers to be equipped practice. It will also carry on its innovative advocacy efforts as with the knowledge of how to identify potential collusive well as collaboration with other law enforcement agencies and conduct in their work and to stay vigilant in detecting potential public bodies to ensure a coordinated and effective approach to contraventions of the Ordinance. tackling bid-rigging cartels in Hong Kong.

To this end, the Commission published a “Guide to Competition Ordinance” in May 2018 to assist personnel from the government, public bodies and law enforcement agencies in understanding the key elements of the Ordinance and in identifying signs of anticompetitive practices in the marketplace, such as bid-rigging,

41 Competition Commission v Nutanix Hong Kong Limited and others (CTEA 1/2017) 42 Competition Commission v. T.H. Lee Book Company Limited, The Commercial Press (Hong Kong) Limited, Sino United Publishing (Holdings) Limited and Hui Chiu Ming (CTEA 2/2020). 40

Bid rigging investigations – The Israel Competition Authority experience discovered and without leaving a trace. Luckily for enforcers, this is often not the case. In reality, competitors distrust each other, and mutual deceit is common between members of the cartel. As competitors frequently try to swindle one another and are motivated to enhance their revenues at the expense of others, Mr. Haim Arbib Adv., Head of the Investigations and communication regarding the enforcement of the cartel is likely Intelligence Department, Israel to be found, if one looks hard enough. Competition Authority Bid-rigging cartels are different. These mostly involve large scale public tenders issued by government agencies and Over the years, the Israeli Competition Authority (ICA) has municipalities. Public interest in these cases is high, as the cartel gathered practical experience investigating bid-rigging cartels in gains are at the public’s expense and result in higher taxes due to various markets. The successes, and sometimes failures, have left elevated expenditure. us with insights into this unique type of investigation.43 Unlike a long-standing typical cartel, bid rigging cartels mostly As it would be impractical to discuss the entire collective revolve around a single tender at each moment. This important knowledge in this field, this document has a more modest aim. It attribute influences the way we investigate these types of cartel. will elaborate on some of the major lessons learned at the ICA on Unlike typical cartels, bid-rigging cartels occur at a specific this subject, which we hope may be of assistance to peer agencies. moment in time – mostly near the publication of a public tender, Illegal restrictive arrangements between competitors, or immediately after. At this time, potential members of the commonly known as ‘Cartels’, are considered criminal offences cartel must decide on the practical aspects of the collusion – who under Israeli law.44 Such arrangements are punishable under the will win, how the profits will be distributed, etc. This is the only Competition Law by up to 5 years’ incarceration. time that such potential members take the risk of participating in The word cartel comes from the Italian word cartello, which illegal communications. means a „leaf of paper” or „placard”. The Italian word became Several characteristics of the relevant market and the way cartel in Middle French, which was borrowed into English. Its in which the tender is issued, either increase or decrease the current use in the Mexican and Colombian drug-trafficking chances for a ‚successful’ bid-rigging cartel: world comes from the Spanish word cartel. In English, the word was originally used for a written agreement between warring Pre-existing business relations between nations to regulate the treatment and exchange of prisoners.45 competitors – such relationships increase the chances that Modern day ‚cartels’ of the type investigated by the ICA are they will be involved in a cartel. If the competitors already have divided into two categories. The first are ‚typical’ cartels and the working relations, know one another and have formalised lines second are bid-rigging cartels. of communications, it is easier for them to use this infrastructure A „typical cartel” takes the form of an arrangement between to facilitate the cartel. The Bakeries Cartel investigated in 2010 competitors regarding the usual and day-to-day sale of their is a good example of this characteristic. The 4 largest bakeries products. Competitors agree either on prices, market allocation, in Israel took advantage of a meeting of a bakers association of quality of service, etc. Under Israeli law, any arrangement between which they were members and stayed in the same meeting room competitors regarding these criteria is deemed restrictive to to formalise the price fixing of basic breads. The investigation, business practices and is subject to criminal enforcement. The which had been initiated due to a public tender, led to the violation is complete once the agreement has been reached, uncovering of the illegal communication and, consequently, to irrespective of whether it is carried out or not. the uncovering of a „typical cartel”. Notably, and ironically so, the The ICA’s experience shows that more often than not, tender itself was not part of the final indictment. the highest levels of the company are involved in the illegal arrangement. The arrangement itself is kept secret and is The frequency of the publication of a certain only shared with a few people within each company. In these tender and even the existence of regular intervals circumstances, theoretically, once a clandestine meeting to fix between publications has also been found to affect the prices has been concluded, a cartel could survive without being incentives to participate in such cartels. Infrequent and unique

43 Although I rely on my experience as Head of the Intelligence and Investigations Department of the Israeli Competition Authority (ICA), this article reflects my own opinions and does not represent, in any way, the official stance of the ICA or the state of Israel. 44 Restrictive arrangements are defined under para. 2 of the Israeli Economic Competition Law 5748-1988. For the English version (unofficial) see:https://www. gov.il/en/departments/legalInfo/competitionlaw 45 „Definition of CARTEL”. www.merriam-webster.com. Retrieved 2019-11-29. 41

tenders, published only once in several years – typically for proving its existence prior to the win and as part of the cartel. large scale projects – create higher incentives to participate in If a losing competitor suddenly appears as a sub-contractor, cartels. This is true especially for big government contracts that this may be indicative of a cartel: if the job is worthwhile after have no equivalent in the private sector. Companies have a lot subtracting payment to an intermediate – why was a better offer at stake regarding each tender and are more prone to illegal not submitted in the first place? arrangements, as equivalent tenders will not be easy to find if For these reasons, frequent, irregular tenders – between non- they lose the tender. In these cases, we may see an arrangement familiar parties, issued by many parties and for varied amounts where one party will forfeit winning the tender in return for – serve as an obstacle for bid-rigging cartels. Members know that either monetary compensation or compensation in the form of losing one tender still leaves them with options. Balancing which the subcontracting of similar scale projects. member got its fair share of the market becomes more difficult Frequent and regular tenders are also problematic, as they to the changing value of each tender. Irregular publication of provide a stable background for companies to allocate the market tenders, although bureaucratically difficult for the issuers, can between the different competitors. The Tree-Pruning Cartel cause an even bigger headache for any potential violator. investigation46 found that the regularity of the tenders made it Before we conclude, in addition to everything mentioned easier for members to divide the market between themselves. above, it is also important to note that previous years have shown In this market, tree pruning tenders to protect electricity that bid rigging cartels can exist even when some competitors infrastructure and protect against fire hazards were the target of refuse to participate, taking into consideration the repetitive a wide scale cartel. Since tenders were issued every two or three nature of tenders. Although cartel members prefer that all parties years for each area, a member of the cartel would intentionally to a potential tender are part of the cartel, cartel members have lose one year, knowing that he would win the same tender issued ways of dealing with ‚problematic’ competitors. By agreeing that next year, or win a tender issued for a different area for the same only one member of a cartel will give a competitive price while amount, and so on. ‚Fair’ allocation was easy to track and the others bid higher prices, they force the non-member of the cartel cartel died out only due to the investigation. This cartel was so to either win with an extremely low price – which is unsustainable damaging to the market that in some cases prices from the cartel on a long-term basis – or constantly lose until they ‚come to their were up to 3 times higher than regular market value, returning to senses’. If, at the end of the day, the refusing party does not issue the normal amount only after the investigation. a bid in the tender and the winning member of the cartel forfeits Although it is often assumed that the higher the number of the tender, the next agreed winner after this member – which has potential competitors, the lower the chances of an effective cartel, already issued a higher bid that is more profitable to the cartel – our experience has shown that this consideration – although becomes the new winner. It is a win-win situation for the cartel, important – has less influence than the regularity and frequency and a lose-lose situation for the public. of the tenders. The Tree-Pruning Cartel was comprised of over Attempts at requiring collateral from issuing parties for their 30 companies and 60 members and was effectively controlled bids in order to incentivise them not to forfeit have proven less by a coordination mechanism, which included intermediaries, successful, as forfeiters either find ‚legitimate’ reasons for their arbiters and more. If it were not for a disgruntled member of the forfeiture or are willing to pay the collateral, as the dividend from cartel, we are doubtful that the arrangement would have stopped. the cartel still leaves them with profits to spare. In conclusion, bid-rigging cartels are a unique form of cartel, The nature of the product to be supplied in the with specific characteristics which are important to identify. tender also influences the possibility of bid rigging. The details of the relevant market and the identification of the Tenders regarding non-branded products or work products that particular patterns of the cartel, have particularly significant can be completed by many different people are easier to cartelise. implications in the framework of a bid-rigging investigation, as For example, infrastructure tenders – which allow the job to be different patterns mean different modus operandi of the cartel. divided among several contractors able to do the same job – Accordingly, an in-depth study of the market may help an agency enable competitors to reach an agreement where one competitor to uncover collusion. will be the actual winner, even though the tender has been divided beforehand as part of the cartel and will be implemented using subcontracting agreements after the tender has been won. Subcontracting, which is a legitimate business practice, is taken advantage of and the focus of the investigation is therefore

46 The Tree Pruning Cartel was a long-standing cartel between dozens of companies in Israel including bid rigging, price fixing and market allocation of public tenders for the pruning of trees required for fire control and electricity safety in Israel. See: https://www.gov.il/en/departments/news/treepruningcartel 42

Fighting bid-rigging in Italy

Alessandra Tonazzi, Michele Pacillo, Director of the EU and International International Affairs, Affairs Directorate of the Italian Italian Competition Authority Competition Authority

Introduction cartels were cracked down (out of 14 anticompetitive agreements This article discusses how the Italian Competition Authority ascertained). (hereafter the Authority or the AGCM) detects and prevents bid- After an overview of the legal framework (section 1), the article rigging by advocating for the better design and implementation first discusses some issues encountered in enforcement and of tender procedures.47 related mainly to the detection of bid-rigging schemes; incentives Public procurement of goods and services for the public to report to the AGCM can be low despite the availability of administration ranges across several economic sectors and leniency programmes, since colluding bidders operate in small affects around 10% of the Italian GDP. Therefore, efficient and markets where they know each other, and they risk facing effective tendering procedures are key to ensuring that goods criminal charges (section 2). To fill this gap in self-reporting, and services are procured at the best value for money and that the Authority’s strategy has been to engage with other actors, savings are made for the public budget, contrasting corruption such as procurement agencies, to advocate for tender design that and promoting competition. minimises the risk of collusion as a preventive measure (section Public spending and infrastructure investment will be indeed 3) and to strengthen its detection capabilities by cooperating a key driver of the recovery after the Covid-19 sanitary and with procurement agencies and, given also the criminal nature economic crisis in the years to come. The Covid-19 emergency of bid-rigging in Italy, public prosecutors (section 4). The article has deeply affected public procurement in Italy by drastically concludes with some recommendations on how to foster bid- reducing the recourse to competitive tendering procedures; rigging detection and prevention. for instance, with respect to the health supplies of protective devices and medical equipment (value of 3€bn), the majority of 1. The legal framework in Italy public contracts have been awarded through procedures with Public procurement is a relevant part of the Italian economy no publication of the tender (77%) or through direct awarding and affects several economic sectors. In 2020, the value of all (20%), mainly by central purchasing bodies or central bodies public contracts was around 10% of the GDP (227 €bn). The (around 57%).48 However, the renewal or extension of existing procurement is organised in an extremely decentralised way: in contracts needs to be limited in time and scope to what is strictly 2020 there were 25,700 tendering authorities involved in 4.95 necessary to respond to the emergency situation in order to million tendering procedures.50 prevent corruption and collusion from undermining the positive The main piece of legislation regulating public procurement is contribution of public procurement to economic recovery.49 the Italian Public Contracts Code (Legislative Decree no. 50 of In this context, competitive tendering processes and procurement 2016), whose enforcement and supervision are entrusted to the are fundamental to ensure that public money is well spent and Anti-Corruption Authority (ANAC). competition is not undermined. Bid-rigging is one of the most serious infringements of the Bid-rigging has long been an enforcement priority of the AGCM; Italian Competition Act (Art. 2 Law 287/90) and the Treaty of between 2015 and 2020, nearly half of the cartel investigations the Functioning of the European Union (Art. 101 TFEU); the concluded by the Authority (16 out of 34 cases) concerned conduct can attract administrative pecuniary sanctions of up to collusive conduct in public procurement. 2015 was a record 10% of the companies’ turnovers in antitrust proceedings and year for the enforcement practice of the AGCM, as 8 bid-rigging even higher amounts in proceedings for private damage actions. Furthermore, the guidelines for the Italian Public Contracts

47 The views expressed here are the authors’ and do not necessarily reflect those of the Italian Competition Authority. 48 See the data reported by the Anti-Corruption Authority (ANAC) in a webinar: https://www.anticorruzione.it/portal/rest/jcr/repository/collaboration/Dig- ital%20Assets/anacdocs/Attivita/AttivitaInternazionale/14_07_WebinarSeriesDay4_sito.pdf 49 See OECD (2020), The role of competition policy in promoting economic recovery,www.oecd.org/daf/competition/the-role-of-competition-policy-in-promo - ting-economicrecovery-2020.pdf 50 See ANAC database on public contracts, available at: https://dati.anticorruzione.it/superset/dashboard/appalti/ 43

Code envisage that antitrust liability (as established by an cartels. Out of six cartel investigations prompted by a leniency infringement decision of the AGCM and upheld via judicial programme between 2015 and 2020, only one case – described review) is one of the factors that tendering authorities may take at the end of this section - concerned public procurement. into consideration when it comes to excluding a company from Moreover, the Italian economic landscape is populated by many participating in public tenders in Italy.51 SMEs, which may not have access to the legal advice they require Bid-rigging is also a criminal offence (Art. 353 of Italian in order to become acquainted with the leniency notice and Criminal Code), and criminal sanctions can be imposed on approach the agency. individuals by the Courts. As a consequence, employees and Second, incentives to apply for leniency may also be weakened directors of companies involved in a bid-rigging conspiracy may by the presence of a plurality of public procurement agencies in be subject to criminal penalties even though their companies Italy, meaning that many tenders involve markets that have a have been granted full or partial leniency by the AGCM. regional or local dimension in which the few market operators This is a relevant issue in Italy given that the AGCM has the duty know each other and regularly participate in various tenders. to inform the public prosecutor of any criminal offence, and the Such multi-market contacts are likely to facilitate collusive public prosecutor can ask the AGCM for all the documentation behaviour as part of multi-regional schemes to allocate lots or of the case, including documents obtained under the leniency tenders. Furthermore, the fragmentation of public tenders can programme. As a consequence, incentives to cooperate with the make it more difficult for the Authority to assess whether the Authority under a leniency programme are rather low. particular rigged tender is part of a wider collusive plan involving Given this context, the AGCM has advocated for an enhanced other tenders. interplay between criminal and civil proceedings; namely, Third, another important challenge for effectively prosecuting the granting of full leniency from criminal actions to the first big-rigging cartels as a competition offence is related to the applicant to the Italian leniency programme. standard of proof: the experience of the AGCM shows that This solution is envisaged by Directive (EU) 2019/1,52 which consolidated collusive schemes do not necessarily require is currently being transposed in Italy; the new EU framework explicit contacts between the bidders and this raises investigative requires Member States to ensure that employees and directors and evidentiary issues for the Authority, in the absence of of companies benefitting from immunity are also immune contributions from leniency applicants. Several investigations from the administrative and criminal law consequences of the were launched on the basis of suspicious patterns signalled by offence, provided that the request for immunity precedes the procurement agencies; however, as clarified by the Courts, commencement of criminal proceedings and that the persons circumstantial evidence is rarely sufficient on its own to prove an concerned cooperate actively with the national competition anti-competitive conduct and indicia of suspicious bid patterns authorities. ought to be corroborated by proof of contacts between parties Outside bid-rigging cases, the Authority can only carry and anticompetitive intent, in a way that the allegation of the out its advocacy role vis-à-vis the ANAC and other interested AGCM is the only one capable of explaining the facts or in any stakeholders, such as procurement agencies and public case clearly preferable to any alternative hypothesis (the so-called prosecutors. principle of “narrative consistency”).53 Fourth, in the AGCM enforcement practice some bid-rigging 2. Enforcement issues schemes were implemented through recourse to bidding consortia The enforcement practice of the AGCM has highlighted several or sub-contracting, two tools envisaged by the Italian Public issues. First, as noted above, the lack of a legal interplay between Contracts Code. According to a general principle established the leniency programme and the criminal consequences for by the Italian case law, contractual institutes including those individuals flowing from some competition infringements may envisaged by the Public Contracts Code, although abstractly undermine the incentives to apply for leniency and adversely neutral and legitimate, can be used in a distorted manner for affect the agency’s ability to detect and prosecute bid-rigging anticompetitive goals, for instance as a cover or a vehicle for

51 Companies can put in place self-cleaning measures (e.g., the adoption of a compliance and/or a leniency programme) to show their integrity and reliability, thus avoiding their debarment. See the Guidelines n. 6 of the Anti-Corruption Authority (ANAC), Linee Guida n. 6 – Indicazione dei mezzi di prova adeguati e delle carenze nell’esecuzione di un precedente contratto di appalto che possano considerarsi significative per la dimostrazione delle circostanze di esclusione di cui all’art. 80, comma 5, lett. c) del Codice, 2018. 52 Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market, OJ L 11, 14.1.2019, p. 3–33, available at: https://eur-lex.europa.eu/eli/ dir/2019/1/oj 53 See, for instance, Supreme Administrative Court (Consiglio di Stato) rulings no. 5885, 5898, 5900, 5884, 5897, 5899, dated 6 October 2020, with respect to the AGCM case I796 –Servizi di supporto e assistenza tecnica alla PA (concerning bid-rigging in the market for support services and technical assistance to public administrations in the management of EU funds). The Authority found evidence of anomalous bidding behaviour by the parties (e.g., cover bids) and evidence of contact between them (e.g., arrangement of meetings to discuss issues related to the tender, and also documents showing simulations of the allocation of lots prior to the tender). 44

a cartel agreement. The Authority has the burden of proof to by information asymmetry and investment risk, therefore, the demonstrate that a bidding consortium or sub-contracting is design of tenders can be challenging especially when public being used to eliminate competition in the tender procedure. procurement is highly fragmented at regional and local level and In particular, the Authority ought to consider the following procurement officials lack the relevant skills and expertise. elements: the rationale of the conduct, the efficiency defence, The AGCM carries out its advisory role by providing opinions the structure and characteristics of the relevant market and the to procurement agencies with respect to: intended use of the contractual institute. - contract design: definition of the object; technical An interesting example is provided by the AGCM investigation requirements; allotment criteria; on a cartel affecting the outcome of a tender procedure for the - tender design: participation/selection criteria; awarding provision of cleaning and maintenance services for public offices mechanisms; assessment criteria of technical and economic throughout Italy (Case No. I808).54 In April 2019, the AGCM requirements. found that the four main market players had formed a number of distinct temporary associations of undertakings that exchanged Opinions are rendered to Consip, the central government information about their bidding strategies during meetings procurement agency, on a regular basis while opinions to local and through subcontracting. These exchanges were part of a tendering authorities can be delivered either ex-officio or at their concerted practice by which the bidding consortia submitted request. bids that had no overlap, according to a so-called “chessboard” As Graph 1 shows, the Authority’s advocacy intervention in pattern. The Authority found that bidding consortia and this area has been a relevant part of its overall advocacy activity, subcontracting were used within their intended purpose but ranging from 10% and 30% of the overall advocacy opinions in a distorted manner: bidding consortia to define a lot sharing delivered by the Authority. scheme and subcontracting as a compensation mechanism for those companies not bidding. The AGCM issued an infringement decision and imposed a sanction of €235 million in total. The First Instance Court, while annulling the infringement decision vis-à-vis three companies for insufficient evidence (only circumstantial), confirmed the violations charged against the other companies although it lowered the imposed sanctions. In particular, the Court found that the endogenous and exogenous evidence relied upon by the AGCM was relevant and significant.55 First, the Authority correctly found numerous anomalies in the bids submitted by the companies; second, the Authority’s findings were based on documentary evidence (such The most frequent types of design issues tackled by the AGCM as emails and documents seized at the companies’ premises), as in its opinions concern tender participation and award criteria, well as on wire-tapping records retrieved in the parallel criminal followed by participation in bidding consortia and allotment proceedings. The case is now pending before the Supreme design. Administrative Court. With respect to tender participation criteria, the AGCM has advocated for the technical and financial requirements of 3. Advocacy in public procurement potential bidders to be impartial and reasonable, established Since its establishment in 1990, the Authority has prioritised ex-ante and made known to participants, and strictly related advocacy initiatives aimed at preventing bid-rigging and has to the tender object, actual value of the contracts and relevant advised procurement agencies with the understanding that well- experience. For instance, the Authority found that in some designed tenders not only foster competition by favouring the cases the tendering agencies did not describe the requested or participation of new potential bidders, but also contribute to desirable features of the products or services to be procured increasing the transparency of the public administration as an but instead identified them with specific existing branded ones. indirect way of preventing or detecting corruption, saving public Similarly, the AGCM outlined that turnover thresholds for spending and opening-up concentrated sectors to competition tender participation were in some cases set in a disproportionate (i.e., liberalisation). manner, with no reference to the value of the contract and the Tenders can be viewed as incomplete contracts, characterised contract period.

54 See AGCM case: I808 - GARA CONSIP FM4 - ACCORDI TRA I PRINCIPALI OPERATORI DEL FACILITY MANAGEMENT, final decision No. 27646 of 17 April 2019 and published in the AGCM Bulleting No. 19/2019, available on the AGCM website. 55 See the rulings of TAR Lazio (First Instance Court) no. 8767, 8768, 8774, 8775, 8776, 8777, 8778, 8779, 8781, 8770, 8772, 8779, 8765, 8769, dated 27 July 2020. 45

In relation to award criteria, the Authority has advised the use trigger an antitrust investigation by the AGCM. of the lower bid criterion in tenders for homogenous products or This initiative towards tendering authorities has led to an services, while the best economic offer criterion is considered to increasing number of complaints to the AGCM about suspected be more appropriate when qualitative aspects are prevailing. In bid-rigging schemes and, as mentioned above, in 2015 the setting the scoring system, tendering agencies should balance bid AGCM investigated 8 bid-rigging cartels. performance with the fulfilment of technical/qualitative criteria. The Authority has also underlined in its advocacy efforts that Cooperation with public prosecutors the purpose of temporary bidding consortia is to increase the Another important facet of the AGCM strategy is cooperation number of potential bidders by allowing the participation of firms with the public prosecutors. specialised in different areas. The Authority’s practice appears to Indeed, some of the AGCM’s bid-rigging cases started following suggest that bidding consortia with members that are individually criminal investigations into corruption in public procurement. able to satisfy the technical and financial requirements should be For instance, in the bid-rigging case on facility management looked at with some caution, as they could potentially serve as tenders mentioned above, the AGCM cooperated with public a collusive device, even if this concern is not recognised in the prosecutors in Rome, who were investigating the same conduct in 2014/24/EU Directive on public procurement. connection with criminal proceedings, and it relied on a leniency Finally, the Authority has outlined some aspects of allotment application submitted by one of the parties to the cartel as well criteria, recommending that the number of lots should be as on wire-tapping records provided by the public prosecutors. generally lower than the number of bidders, firms controlling In this regard, the First Instance Court reiterated the principle or participating in other bidding firms should not be allowed that wiretapping records that have been lawfully acquired in the to participate and a higher number of lots can be valuable to context of a criminal investigation pursuant to the procedural capture a more differentiated demand. rules concerning the gathering of evidence may be used by the AGCM in antitrust proceedings. 4. Cooperation to foster detection In other cases, the AGCM transmitted its infringement With a view to improving its ability to detect bid-rigging decisions to the competent public prosecutor due to the statutory cartels, the Authority has adopted a multi-faceted strategy, obligation to report alleged criminal offences, including bid- involving increasing cooperation with major stakeholders, rigging. namely public procurement agencies, public prosecutors and the Recognising the increasing importance of cooperation agency supervising all public tenders in Italy, the ANAC. with public prosecutors, in January 2018 the AGCM signed a Memorandum of Understanding (MoU) with the Public Cooperation with public procurement agencies Prosecutor’s Offices of Rome and Milan to increase the The Authority has long recognised the importance of raising effectiveness of prevention and fight against corruption in awareness among procurement officials of bid-rigging schemes the public administration. The MoU sets up an operational and their negative consequences on public administrations as framework for the exchange of information on criminal and well as on the overall State Budget. administrative proceedings within the respective areas of With this in mind, the AGCM has established a partnership responsibility. with the central government so that all the tenders issued by Consip, the central government procurement agency, are Cooperation with the Anti-corruption authority, the ANAC reviewed by the Authority before their launch. The ANAC is responsible for the enforcement of the anti- Furthermore, in 2013 the Authority issued a handbook56 based corruption legislation and the compliance with the Public on the OECD Guidelines for Fighting Bid Rigging in Public Contracts Code, which contains all the provisions related to Procurement to help procurement officials to identify market the design and execution of public tenders by all procurement characteristics that are more prone to collusion, recognise agencies in Italy. suspicious bid patterns and other anomalous conducts that Shortly after its establishment, in 2014 the two authorities may signal collusive behaviour and report these findings to signed a MoU to foster information exchange and cooperation. the Authority. The handbook has been widely promoted and Indeed, the ANAC manages the National Database on disseminated to procurement agencies, which were reassured Public Contracts, which contains an extensive amount of data on about the continuation of the tendering procedures in cases major tenders; such data, in the AGCM experience, can be very where suspicious bid patterns are identified, as the latter would helpful in delineating the broader picture beyond a suspected represent only initial indicia of wrongdoing and not necessarily collusive episode at a single tender level. A pilot project between

56 See AGCM resolution dated 18 September 2013, available at the following link: https://www.agcm.it/dotcmsDOC/allegati-news/Delibera_e_Vademecum.pdf the Authority and the ANAC to design screening devices approved by the EU to address the challenges posed by the for public tenders was carried out in previous years but was pandemic), contains important measures: rationalisation of abandoned because results were disappointing due to gaps in procurement agencies and training of their officials together with the ANAC database, which only contains information about an enhancement of the public contracts database that is managed winning bids. by the ANAC. These measures, if implemented, will help make the procurement system more transparent, thereby reducing the Concluding remarks scope for collusive behaviour and corruption. Fostering the detection of competition offences in public Another important suggestion to foster the detection of bid- procurement is a challenging task for the Authority for the issues rigging is to extend cooperation with the public prosecutors of discussed in the above sections. To address such a challenge, other main cities in Italy, with a view to raising awareness of there are several areas where improvements could be made. the competition-related aspects of bid-rigging and encouraging First, it is important to boost the adoption of leniency information exchange with the Authority. programmes by raising awareness of their benefits, especially Finally, the use of big data, algorithms and artificial intelligence among SMEs, and by strengthening the incentives to collaborate is certainly bringing innovation in this area too; as companies find with the AGCM, particularly in the context of bid-rigging new forms of cartelisation, competition authorities are reacting violations. In this regard, the transposition of Directive (EU) by experimenting with new digital detection tools, adapting 2019/1 in the Italian framework will likely increase reporting to their investigative strategies and evidence gathering instruments. the Authority, thanks to the granting of immunity from criminal Therefore, it is important for competition authorities to closely charges to the individuals of companies that apply for leniency. monitor these developments and learn from the experiences of Second, the excessive fragmentation of public procurement in the authorities that have started using these tools (which have Italy, the low technical skills of the procurement officials and a been debated in international fora), such as the OECD and the complex legal framework full of exemptions and loopholes make ICN. 57 the Italian procurement system prone to risks of corruption and inefficiency. As part of the government efforts to simplify the general framework on public procurement, the national recovery and resilience plan sent by the Italian government to the European Commission in May 2021, in the context of the Next Generation EU (a temporary recovery instrument

57 See for instance the recent ICN project on The impact of digitalization in cartel enforcement- Scoping paper, 2020, available at: https://www.internationalcompe- titionnetwork.org/wp-content/uploads/2020/06/CWG-Big-Data-scoping-paper.pdf. 47

Fighting bid rigging in the U.S.

Michelle Rindone, Assistant Chief Carolyn Sweeney, in the Antitrust Division’s Counsel to the Antitrust Division’s International Section, Assistant Attorney General, US Department of Justice US Department of Justice

Every day, governments around the world conduct bidding rigging in the United States. To date, the PCSF has trained more to procure critical goods and services. The OECD has estimated than 12,000 agents, investigators, analysts, auditors, attorneys, that, on average, 12% of the GDP in OECD countries are spent and procurement officers from more than 500 offices and on public procurement and an even greater percentage of GDP agencies. is spent on public procurement in developing countries.59 Moreover, eliminating bid rigging could reduce procurement The PCSF outreach is a substantial, but worthwhile costs by 20 percent or more.60 Safeguarding these precious undertaking. The PCSF has enhanced the Division’s detection funds from bid rigging is one of the most important goals capabilities, and has resulted in opening more than 30 of a competition agency.61 As part of the U.S. Department of investigations since November 2019. These investigations span Justice, the Antitrust Division dedicates substantial resources to a range of industries from defense and national security to deterring, detecting, investigating, and prosecuting bid rigging infrastructure. Some of these investigations focus on bid rigging in a wide range of industries, placing special attention on bid impacting small geographic areas of the United States, whereas rigging in public procurement. other investigations are global.

To increase the effectiveness and efficiency of its public The PCSF investigations are in addition to investigations that procurement enforcement efforts, the Division recently created result from the Division’s leniency program, which is one of its the Procurement Collusion Strike Force (PCSF).62 The PCSF is most important investigative tools for detecting cartels, including a coordinated interagency partnership, which currently includes bid rigging.64 nearly 500 members from 48 agencies and offices, including U.S. Attorneys’ Offices, the Federal Bureau of Investigation (FBI), and The PCSF also aims to facilitate more effective and efficient the Inspectors General, or investigative teams, of multiple federal detection, investigation, and prosecution of bid rigging. One agencies.63 of the main ways the PCSF accomplishes this objective is to assist procurement officials in identifying collusion “red flags.”65 The PCSF strives to deter bid rigging by increasing awareness Under U.S. law, a bid-rigging conspiracy is an agreement among among various stakeholders. This includes connecting with horizontal competitors about bids or offers that are to be submitted federal, state, and local procurement officials to assist with to or withheld from a third party. Although the agreement evaluating and structuring their procurement processes to itself is quite simple, bid rigging can take many forms, such as remove vulnerabilities, as well as connecting with government competitors agreeing to take turns winning bids (also known as contractors, trade associations, and attorneys who practice in bid rotation), competitors agreeing to submit intentionally high this area to educate them about the significant penalties for bid bids, or otherwise unacceptable bids (also called complementary,

58 The views expressed herein are their own and do purport to represent those of the U.S. Department of Justice. 59 OECD, Competition, Fighting Bid Rigging in Public Procurement, available at: https://www.oecd.org/competition/fightingbidrigginginpublicprocurement.htm. 60 Id. 61 Id. The OECD estimates that eliminating bid rigging could drop prices for public procurement by 20% or more. 62 U.S. Department of Justice, Antitrust Division, Procurement Collusion Strike Force, available at: https://www.justice.gov/procurement-collusion-strike-force. 63 The United States is divided into 94 federal districts to assist with the enforcement of federal laws. As part of the U.S. Department of Justice, U.S. Attorneys’ Offices are responsible for federal law enforcement in their district. 64 Under the Antitrust Division’s leniency program, corporations and individuals who report their cartel activity and cooperate in the Division’s investigation can avoid a criminal conviction, fines, and prison sentences if they meet the requirement of the program. Further information about the leniency program is available at: https://www.justice.gov/atr/leniency-program. 65 See Red Flags of Collusion (June 2015) and Video: Recognizing Antitrust Conspiracies and Working with the Antitrust Division (November 2019), both available on the PCSF webpage available at: https://www.justice.gov/procurement-collusion-strike-force 48

courtesy, cover or token bids), and competitors agreeing to refrain Investigative Command, and the U.S. Air Force Office of Special from bidding.66 Other bid rigging red flags may include a losing Investigations to investigate. The investigation uncovered bid competitor receiving a subcontract award from the winning rigging among four South Korean oil refineries, and their agents competitor, bid prices suddenly increasing without explanation, and employees, who agreed to rig bids on contracts to supply or similarities in the bids themselves, such as typos or metadata fuel to U.S. military installations located in South Korea. The indicating that all the bids were prepared by the same bidder. conspiracy lasted for more than a decade, from at least 2005 When a red flag is detected, the PCSF and the partner complaint through 2016, and continued through numerous bidding cycles, centers or hotlines serve as avenues for reporting misconduct. which were usually spaced a few years apart. When potential illegal conduct is identified, prosecutors and agents from the PCSF’s partners are jointly mobilized to As detailed in the public charges, two U.S. Department of investigate and, if validated, prosecute the illegal conduct. Defense agencies purchased fuel through a process that was intended to be competitive. The Defense agencies purchased The PCSF also leverages data analytics tools of its investigative different types of fuel for different locations, and allowed partners to identify potential bid rigging red flags in government the bidders (South Korean oil refineries) to choose which procurement data. During 2020, the PCSF began a data analytics component (also known as line item) on the contract to bid on. dialogue among its partners by organizing several webinars. The Defense agencies then awarded the contract based on the More than 1,000 data scientists, analysts, and auditors attended. lowest bid price and the bidder’s past performance. Rather than Afterwards, the PCSF attorneys engaged with dozens of agency compete, however, the bidders discussed and agreed which oil data analytics teams to encourage them to build or enhance refinery would win each line item in the bid solicitation, and at tools to detect bid rigging, and offered additional training in which price. By sharing the winning price, other bidders were detecting suspicious bid patterns. The PCSF attorneys also in a position to submit intentionally losing bids, or to refrain provided valuable introductions between the various partner from bidding on the line item that had been allocated to another data analytics teams. bidder.

The Division’s newest public procurement initiative involves This case demonstrates the effectiveness of collaboration expanding the PCSF’s efforts internationally through PCSF: among agencies, as well as the usefulness of hotline and complaint Global, which the Division started laying the groundwork for in centers. As a result of this collaboration, the investigation resulted 2020. In June 2020, the Division submitted a note to the OECD’s in criminal charges against five corporations (four oil refineries Competition Commission Working Party 3.67 In September and one corporate agent), which paid over $150 million in 2020, the Division organized a PCSF Showcase adjacent to the criminal fines. The Division also charged seven individuals for International Competition Network’s virtual annual conference.68 their roles in the illegal conduct. A goal of PCSF: Global is to continue to build connections among enforcement counterparts to detect and investigate bid This case also illustrates several bid rigging red flags. Since rigging stemming from the substantial amount of U.S. funds it was too costly to buy fuel outside of the region, the number spent abroad. of bidders was limited to oil refineries in South Korea. The fuel industry also provided incredibly high barriers to entry into the The Division’s Korea Fuel Services investigation, one of the market. In addition, it was well known that the U.S. military most significant procurement-related cases in its history, is an purchased fuel every few years. The regular bidding cycles example of the Division’s international efforts.69 This investigation allowed the bidders to pre-determine their market shares down arose from a hotline complaint made to one of the Division’s to the very line item. law enforcement partners, which then organized agents from the FBI, the U.S. Department of Defense Criminal Investigative During the global pandemic, public procurement enforcement Service, the Defense Logistics Agency, the U.S. Army Criminal efforts have not slowed and the Division continues to detect and

66 See Price Fixing, Bid Rigging, and Market Allocation Schemes: What They Are and What to Look For (February 2020), available at:https://www.justice.gov/atr/ file/810261/download; An Antitrust Primer for Law Enforcement Personnel (September 2018); available at: https://www.justice.gov/atr/page/file/1091651/download 67 Criminalization of Cartels and Bid Rigging – Note by the United States (June 2020), available at: https://www.justice.gov/atr/page/file/1316546/download 68 PCSF Showcase (September 2020), video available at: https://www.ftc.gov/news-events/audio-video/video/international-competition-network-2020-virtual-conference-day-3 (at 2:55:00); slides available at: https://www.justice.gov/atr/page/file/1317471/download 69 Three South Korean Companies Agree to Plead Guilty and to Enter Civil Settlements for Rigging Bids on United States Department of Defense Fuel Supply Contracts (November 2018), available at: https://www.justice.gov/opa/pr/three-south-korean-companies-agree-plead-guilty-and-enter-civil-settlements-rigging- bids; DOJ Agrees to Civil Settlement with Additional Firm Involved in Bid Rigging and Fraud Targeting Defense Department Fuel Supply Contracts for U.S. Milita- ry Bases in South Korea (April 2020), available at: https://www.justice.gov/opa/pr/doj-agrees-civil-settlement-additional-firm-involved-bid-rigging-and-fraud-targeting-defense investigate cases like Korea Fuel Services. Emergency projects often arise in the context of public procurement, particularly those related to disaster relief. Unfortunately, such exigencies create ample opportunities for bid rigging. Indeed, this is one of the many reasons why the Division is on high alert during the current pandemic.

In addition to prioritizing outreach and providing virtual training for its domestic partners during the pandemic, the Division also began providing technical assistance to its international counterparts through entirely digital communications platforms, including several programs on bid rigging. Administering these programs virtually made them more accessible, allowed more Division staff to attend and provide their expertise, and led to increased attendance from participating countries.

During the pandemic and beyond, the Antitrust Division welcomes the opportunity to share its bid rigging experience and expertise through the OECD Regional Competition Center in Budapest and with the individual competition agencies in its vicinity. News from the Region 51

Legislative reforms in the field of economic competition in the Republic of Armenia

It is worth mentioning that the necessity to establish such legal regulations aimed at prohibiting the abuse of a strong negotiating position is set out in a number of reports of the United Nations Conference on Trade and Development (UNCTAD) and the Organisation for Economic Co-operation and Development (OECD); furthermore, the legislation of about 40 developed and State Commission for the Protection of Economic Competition of Armenia developing countries contains provisions on this topic.

2) Administrative proceedings conducted by The Law on Protection of Economic Competition (hereinafter the Commission referred to as “the Law”) of the Republic of Armenia was adopted Currently, according to the Law, the Commission carries almost 21 years ago, on 6 November 2000. Since then, it has out proceedings of a completely different nature – proceedings undergone many changes, and it is the basic law regulating the for violations of the Law, proceedings for the assessment of field of economic competition. Despite the amendments, the concentrations and proceedings for the provision of opinions. Law still needed significant reforms. However, the implementation of these proceedings – which Consequently, in 2020 the State Commission for the have significant differences – is subject to the same procedural Protection of Economic Competition of the Republic of Armenia regulations according to the Law, which creates problems for (hereinafter referred to as “the Commission”) elaborated a both the Commission and the participants of the administrative package of legislative amendments aimed at improving the proceedings. current regulation and aligning it with international best As a result, the new Law differentiates between the proceedings practice. The new Law on Protection of Economic Competition conducted by the Commission by defining their specific features. (hereinafter referred to as “the new Law”) was adopted by the National Assembly of Armenia on 3 March 2021, signed by the 3) Sanctions President of Armenia on 30 March 2021, and will enter into force When determining the amount of fines for violations of on 31 May 2021. the Law, the current Law sets out their maximum thresholds, It is worth mentioning that the amendments envisage significant which weakens the possibility of achieving the preventive goal changes in the legislation on economic competition, which will prescribed by the Law, since it sometimes provides for sanctions take the legislation and the activities of the Commission to a that are lower than the financial gain obtained from violating qualitatively new level in line with international best standards the Law, thereby enabling economic entities to obtain a profit and principles. Most importantly, the amended Law will ensure from their violation of the Law. Such provisions undermine the that there is a predictable and effective administration process whole policy of the protection of economic competition, since for the benefit of businesses, the state and citizens. all taken measures do not serve their purpose. The Law also Some of the most important changes brought about by the new does not provide for the necessity to establish a procedure for Law are presented below: determining the criteria for the application of sanctions. The possibility of setting clear criteria for the selection of 1) Strong negotiating position sanctions by the Commission is defined by the new Law. The new Law provides for the introduction of the institution of a strong negotiating position and prohibits the abuse of a strong 4) Simplified procedure for assessing negotiating position. concentratons The introduction of the institution of a strong negotiating The Law provides for a unified procedure for the assessment position is due to the fact that in the sphere of retail trade the of economic concentrations, while in some cases this process economic competition is being restricted or prohibited as a can also be carried out in a simplified procedure, thereby result of the abuse of a strong negotiating position of the buyer/ saving the resources of the Commission and participants of the acquirer (for example, in trade networks) and unfair commercial proceeding; an in-depth investigation is not required in relation activities in the relationship of trade network-supplier; however, to concentrations concerning certain product markets because the current Law does not stipulate the possibility of prohibiting concentrations in these markets do not – as a general rule – have the abuse of strong a negotiating position by economic entities. an impact on the markets in question. 52

The new Law stipulates that the mixed concentration and proceeding is terminated, even though there are reasonable concentration of economic entities involved in the group of grounds for assuming that a violation of the Law has occurred. persons shall be permitted under the simplified procedure, where The new Law provides for a mechanism of cooperation with no grounds for rejecting the concentration prima facie exist. the authorities carrying out operational intelligence activities.

5) Introduction of expedited proceedings 8) Ensuring the regulatory framework to According to the new Law, within a period of two weeks after enable the Commission to adopt normative legal receiving the decision to initiate proceedings for an offence acts in the field of economic competition, the respondent in the According to Parts 1 and 2 of Article 6 of the Constitution of proceedings may – in case of admitting the fact of the offence the Republic of Armenia, state and local self-government bodies and having eliminated the consequences of the offence – file with and officials shall be entitled to perform only such actions for the Commission a motion to have the proceedings expedited. which they are authorised under the Constitution or Laws. If a decision to expedite proceedings is rendered, actions aimed Based on the Constitution and Laws, and with the purpose of at examining the case on the merits shall not be carried out and ensuring the implementation thereof, bodies provided for by only the circumstances mitigating and aggravating the liability the Constitution may be authorised by Law to adopt secondary shall be assessed. The Commission shall render a decision as a regulatory legal acts, authorising norms must comply with the result of the proceedings within a period of one month from the principle of legal certainty. day of adopting the decision to expedite proceedings, without For the implementation of the full-value activities of the convening a sitting to hear the participants of the proceedings. Commission, a number of by-laws are required, for the adoption Moreover, the new Law stipulates that when imposing a of which the Constitution provides for the mandatory existence sanction as a result of expedited proceedings, the sanction may of clear and direct authorising norms; meanwhile, these norms not exceed half of the most severe sanction provided for the given are not enshrined in the Law. offence. Consequently, when a sanction is imposed as a result Thus, the normative bases of the by-laws to be adopted by the of expedited proceedings, the aim is to ensure predictable and Commission have been defined. effective administration for the benefit of the economic entity, the state and the citizen. 9) Envisaging cooperation with the Commission in the context of applying sanctions 6) Monitoring system The other change concerns the implementation of the During the year, the Commission receives numerous Commission’s decision in cases where 75 percent of the fine complaints from citizens on pricing violations by economic imposed by the decision of the Commission is paid by the entities. economic entity subject to liability within a period of two months The Law does not provide for the possibility of conducting after the entry into force of the decision, the obligation to pay the monitoring on a regular basis (ongoing monitoring). Legislative fine shall be considered as duly performed. reforms provide for the possibility of conducting continuous monitoring to control commodity prices.

7) Operational intelligence activities In most cases, it is impossible for the Commission to exercise its powers and achieve its goals unless it cooperates with the authorities responsible for carrying out operational intelligence activities, as such cooperation is essential not only to identify violations of the law in the field of economic competition, but also to prevent them. Particularly, anticompetitive agreements are concluded in almost all cases, and other violations of the Law in most cases are carried out by secret oral agreements, while the Commission’s only instrument to detect and confirm violations of the Law is to acquire documentary evidence by requesting information and conducting inspections with limited powers. In this context, it becomes difficult and, in most cases, impossible to prove the fact of violation of the Law and the administrative News from the OECD 54

Insights from the OECD competition week of June 2021 Compliance programmes, competition enforcement and regulatory alternatives, data portability and interoperability, potential competition, methodologies to measure market competition instruments are typically adopted to address the limitations of competition and regulatory approaches and combine the virtues of each approach. In conclusion, although the relationship between economic regulation and competition policy is complex, there can be mechanisms to exploit it and optimise results. Carlotta Moiso, Junior Competition Expert, OECD The second roundtable explored the nexus of agency and business efforts to achieve compliance with competition rules Competition authorities around the world face many and how they can, and should, reinforce each other. The debate challenges in their efforts to protect consumers from anti- around whether competition authorities should incentivise and competitive practices. While some of these challenges have been reward business compliance efforts is still open and has led to known for a long time, others are new and constantly evolving a diversified range of compliance policy developments. Many with the dynamic competitive environment. Both old issues and competition authorities have invested significantly in guidance on new issues were discussed during the June 2021 Competition competition compliance, and many take active steps to incentivise Week. The Competition Committee and its two Working Parties compliance programmes, or to include them as mandatory came together and had a set of meetings on 7-11 June. conditions in infringement decisions or different types of negotiated procedures. Some agencies even engage in evaluating The first roundtable explored the relationship between compliance programmes outside the immediate enforcement economic regulation and competition policy and looked, in context. Unfortunately, despite the considerable resources particular, at the role that regulation can play in competition invested, there is some evidence – albeit limited – indicating enforcement and at how regulation can both substitute that business representatives’ knowledge of competition law and complement competition enforcement in practice. requirements and reporting opportunities remains limited. Competition law and regulation can address different concerns. Cartel statistics are of limited analytical value in assessing the In fact, while both can seek to control the acquisition and exercise effectiveness of agencies actions, as finding a causal relationship of market power, regulation can address a wider set of issues and between compliance programmes and market competition is pursue other social goals. They adopt means that differ in terms virtually impossible. Another interesting point discussed during of scope, timing, methods, flexibility, and types of obligations the roundtable relates to the possibility of deriving compliance imposed. Given all these differences, one may think that these insights from initiatives implemented in public procurement are two alternative instruments and that there may in fact even and anti-corruption. Finally, the conversation focused on the be some tension between them on occasions. However, when main elements of effective compliance programmes, which were they have the same goal, they can also be used complementarily. identified as the following: detection and facilitation of prompt This ambivalent situation is in practice dealt with by the adoption reporting; senior management involvement; monitoring and of different institutional mechanisms whereby the overlaps are auditing; compliance incentives; and third-party compliance. either avoided or embraced and exploited. Despite the existence Although jurisdictions take different approaches when it comes of such mechanisms, the overlaps open the gate to mutual to these elements, they can make the difference between an influences. For example, regulation can and often follows from effective and a “paper” programme. competition intervention; at the same time, regulatory reforms can influence competition enforcement, and competition The discussion then moved on to data portability, enforcement in turn can influence the substance of regulation interoperability, and digital platform competition, and insofar as regulation can adopt competition law concepts and addressed questions such as: What competition issues approaches. Finally, regulation can also influence the substance can data portability and interoperability address? What of competition enforcement. As a result of the dichotomy forms can these measures take? What are the practical and characterising competition law and regulation, a number of legal legal barriers to adopting these measures? What are the instruments expressly adopt a ‘hybrid’ nature, reflecting both limitations of these measures in addressing competition competition and regulatory characteristics. Such legal problems? Digital platforms’ strong economies of scale and 55 scope, network effects, and user lock-in effects may contribute to assess the likelihood and strength of potential competition. One durable market power. Data portability – i.e. the ability of users feature of the market that can influence the strength of a potential to request that a data holder transfers to them or a third party competitive constraint are barriers to entry into the market and data about them in a structured, commonly used and machine- their existence is one of the elements that agencies will rely on to readable format – can reduce the switching costs that users assess the likelihood of entry in the context of the alleged theory face when using a new platform, whether they are switching of harm. Other analytical tools to assess the likelihood and the platforms or multi-homing across multiple platforms. This can strength of a constraint that are already available might include facilitate new entry and enable comparison services. However, the additional weight placed on credible contemporaneous the effectiveness of data portability will depend on the context internal documents, progress against regulatory checkpoints, of the market, the design of the measure and the existence of understanding of business models and of competition to innovate complementary measures. On the other hand, measures related and existing best practice to pro-actively explore alternative to interoperability – i.e. the ability of different digital services to counterfactuals. Other suggestions involve the use of what in work together and communicate with one another – promote some jurisdictions might be newer tools. Once the likelihood and competition by reducing barriers to entry related to network the strength of the potential constraint have been assessed, these effects, unbundling, and enable multi-homing. However, need to be compared with defined thresholds to understand if their implementation through standards may risk hampering the constraint is relevant for a decision. Different thresholds have innovation, impose burdens on new entrants, and may be of been suggested for each one of the possible theories of harm. limited effectiveness if users exhibit a low tendency to switch. Finally, the focus moved to the timeframe adopted to evaluate Therefore, data portability and interoperability measures require potential competition. Although there are some benefits from careful design. They have been implemented through various adopting a short timeframe, its extension could be useful, as mechanisms, such as competition law enforcement, competition it would introduce greater flexibility. Although it is difficult to authority market investigations, sector-specific regulation and conclusively identify and analyse potential competition and its other broad-based regulation. These differ in terms of the design prospective impact, competition authorities have different tools of measures, their scope, and the objectives for which they have at their disposal to successfully do so. been imposed. The main implementation challenges related to these measures consist in defining the range, format and The final hearing explored tools that policy makers and frequency of data to be included in data portability measures, as enforcers can use to reliably measure, track and compare the well as defining the scope of interoperability measures in relation competitive intensity of a market. After starting the discussion to whether the aim is to promote competition between or within with the identification of two different concepts of competition ecosystems. Finally, portability and interoperability measures – i.e. competition as a static state and competition as a process are likely to involve some degree of standard-setting, which – of rivalry – the conversation focused on the description of the when mandated through enforcement or regulatory action – is most commonly applied measures of competition and on the likely to require oversight, clearly defined decision-making identification of their main advantages and limitations. There powers, and funding decisions. Ultimately, data portability exists a plurality of measures of competition: structural measures and interoperability measures, if carefully designed, can help (including the concentration indices, the Herfindahl-Hirschman overcome competition barriers. Index, and entry and exit measures); dynamic measures (such as entry rates, churn, volatility of market shares concentration and The following roundtable focused on the concept of rank); performance measures (such as mark-ups, profit measures, potential competition, its limits, its relationship with H-Statistics and the Boon indicator); and survey measures barriers to entry, how the likelihood is assessed, strength (covering consumer and business perception of competition). and timing of potential constraints, and the thresholds used These indicators can provide useful information, but they to make decisions. Potential competition could be defined as a also present limitations and careful interpretation is generally competitive constraint on a firm’s behaviour that might potentially necessary, especially when they are considered in isolation. arise but that has not yet actually done so. Potential competitive Therefore, the safest approach is to examine a plurality of different constraints are likely to be important in many markets, such measures. Moreover, when measuring market competition, as pharmaceuticals, biotechnology, medical technology and authorities should consider the level of data aggregation, as the agriculture. Theories of harm to potential competition concern, data readily available may not be fit for purpose. Similarly, they among other, killer acquisitions, vertical mergers, exclusionary should bear in mind that the geographical market can expand practices, and anticompetitive agreements. Both losing an actual beyond or beneath the national economy and that the importance constraint and losing a potential constraint have an impact on of imports, exports, and multinational firms should be taken into price, quality and innovation. However, the impact of the former, account. Finally, authorities should not forget about the dynamic despite being certain, would likely be much less significant than aspects of competitive rivalry and should therefore look beyond the (uncertain) impact of the latter. Therefore, it is important to static measures of competition. The last consideration of the discussion was that the choice of the measures of competition that an authority will employ will largely depend on the purpose for which it is attempting to measure competition. This can be to apply competition law in markets affected by mergers and potential abuse of dominance; assess whether pro-competitive intervention is needed and whether such intervention is likely to be net beneficial; or to assess ex-post the effectiveness of a competition policy of an authority.

The June 2021 confirmed that the Competition Week is a successful platform for dialogue and exchange, as it brings together the experiences and opinions of competition experts, who discuss novel and recurring topics to a diverse and large audience of policy makers, regulators, academics, and practitioners. The roundtables and the hearings reminded the participants that competition policy and competition enforcement are constantly evolving in response to a dynamic and active environment, and that competition authorities should be aware of the changes and should prepare to respond to long-standing needs as well as to new necessities. 57

OECD competition trends

oe.cd/comp-trends

Competition enforcement around the world

Figure 1: Key facts about the OECD CompStats Database

Wouter Meester, Competition Expert, OECD Eastern and Southeast Europe and Central Asia experienced its own wave of new competition law regimes, particularly between In the past 50 years competition law enforcement has increased the years of 1990 and 2000 (see figure 2). This makes an analysis significantly around the world. In 1970, only 12 jurisdictions of the abovementioned statistics all the more relevant for the had a competition law, and only seven had a functioning region. This article will discuss some important highlights of the competition authority. Today, more than 135 jurisdictions have report Global Competition Enforcement Update (GCEU) 2021. a competition law regime, and a large majority of these have an active competition enforcement authority. The proliferation Figure 2: Development of competition law in Eastern and over time of competition laws and competition enforcers Southeast Europe and Central Asia around the globe has led to a vast amount of activity in terms of investigations, decisions, advocacy initiatives and events. Collating and analysing reliable competition data is crucial to better understand this global activity, identify possible trends and track the status of and developments within competition law and policy at a global level. Since data is at the heart of the work of the OECD in designing and developing evidence-based policy advice, it launched an initiative in 2018 to develop a unique multi-year database on economic and legal indicators related to competition authorities (CompStats). This database provides accessible, reliable and up- to-date statistics and facts about global competition enforcement Increasing resources trends, including on cartels, abuse of dominance cases and The effectiveness of a competition law primarily depends merger reviews. Competition authorities and policymakers on its ability to be efficiently enforced through the allocation around the world can use such data and trends to compare and of sufficient funds and adequate resources to competition monitor their competition law and policy activities with those authorities. In 2019, the 56 competition authorities included in of others. the CompStats database had a total budget of 1.1 billion euros The OECD initiative includes an annual publication OECD( and had around 10 800 staff members working on competition. Competition Trends); so far, two editions have been published Significant differences between jurisdictions and regions exist (2020 and 2021). In 2021, CompStats includes 5 years of (see figure 3). One can correct for the size of the economy or data, covering 56 countries that represent 48% of the world’s the size of the jurisdiction. For instance, in 2019 the average population and 68% of world GDP (see figure 1). competition budget per 1 million euros GDP varied between approximately 15 and 25 euros, and the average competition staff per 1 million inhabitants between 3 and 10. 58

Figure 3: Overview of competition resources, 2019 jurisdictions. The development was calculated by using the average annual growth rate (AAGR) by jurisdiction. (“Increase” indicates an AAGR-increase of 5% or more, “stable” indicates an AAGR-change between -5% and 5%, “decrease” indicates a AAGR-decrease of 5% or more, “low activity” indicates insufficient activity to calculate a meaningful change, and “No data/N.A.” indicates that no data is available or that this indicator is not applicable for the particular jurisdiction.)

Cartels Competition authorities dedicate a substantial part of their resources to the detection, investigation and prosecution of Large amount of global enforcement activity collusive practices. Cartels and anticompetitive agreements are In 2019, a total of 9 297 decisions (abuse of dominance, cartel a common type of illegal conduct, which can cause significant and merger decisions) were taken by the 56 jurisdictions (see economic harm. However, as collusive agreements are typically also figure 4). established in secret they are hard to detect and prosecute. Figure 4: Overview of competition enforcement activity, 2019 On average, most geographic regions have seen a slight decline in the average number of cartel decisions per competition authority between 2015 and 2019. Europe is the only region where jurisdictions on average took more cartel decisions in 2019 compared to previous years. The share of cases in which

Figure 6: Total number of cartel decisions and the percentage of cases with settlements, 2015-2019

Overall, many jurisdictions saw an increase in mergers between 2015 and2019, while less countries dealt with more cartel cases in the same period and abuse of dominance cases only increased in a small number of jurisdictions (see figure 5).

Figure 5: Change in enforcement activity by jurisdiction, 2015-2019 As evidence of illegal agreements and communications between cartelists can be hard to uncover, different investigative tools and powers help competition authorities to detect violations and law infringements, such as leniency programmes and dawn raids. Leniency programmes have been widely adopted by competition authorities over the past 20 years. Despite this extensive adoption of leniency programmes, the number of leniency applications has been decreasing for all jurisdictions over the past 5 years, from 570 leniency applications in 2015 to a total of 230 applications in 2019. Similarly, dawn raids were considered a fundamental tool for effective enforcement, especially for cartel cases, in order to obtain direct and supporting evidence. Around 400 dawn raids Note: Each wedge of three/four rectangles represents were conducted by the 56 jurisdictions in 2015, but this number the development of the respective indicators in one of the dropped by 34% in 2019 to 273. 59

Abuse of dominance Figure 8: Types of merger decisions, 2019 In most jurisdictions, abuse of dominance cases are less numerous than cartel cases and merger cases, possibly for the simple reason that they can be extremely complex to build. Possibly abusive business conduct may often also enhance market efficiency and benefit consumers. A thorough, economic analysis of the anticompetitive effects of alleged abusive conduct is often required, even when a firm clearly enjoys a dominant position. Fines In 2019, the 56 jurisdictions concluded 212 abuse of dominance The total fines imposed for cartels and abuse of dominance cases (compared to 449 cartel decisions). Moreover, this number amounted to approximately 9.3 billion euros in 2019. represents an overall decrease of abuse of dominance cases of Approximately 7.1 billion euros were imposed in 449 cartel 17% compared to 2015. Five jurisdictions were responsible for decisions, while approximately 2.2 billion euros were imposed in 67% of the abuse of dominance cases concluded between 2015 212 abuse of dominance cases. and 2019, while over half of the jurisdictions concluded fewer While competition agencies should not have the objective of than five cases in those five years (see figure 7). “earning back” their budgets, it is useful for governments to be aware of the public value of competition authorities’ activities. Figure 7: Total number of abuse of dominance decisions by Governments may be more likely to allocate more resources to jurisdiction, 2015-2019 competition authorities if they provide a return not only in terms of enforcement and deterrence, but also in terms of monetary gains and compensation from fines, which normally enter the public purse. On average, between 2015 and 2019, fines for cartel and abuse of dominance infringements were 10 times higher than the average budget of all agencies (see figure 9).

Figure 9: Fines-to-budget ratio (abuse of dominance and cartel cases), 2015-2019

Mergers Effective merger review is an important component of any competition regime. It can help prevent consumer harm from anticompetitive transactions that reduce competition among rival firms and foreclose competitors. Almost all competition law regimes provide for merger control, although the exact implementation can differ substantially between jurisdictions. Jurisdictions in the database received more merger notifications in 2019 than in 2018, with a total of 9 272 notifications received Conclusion in 2019. The vast majority of these mergers were deemed not to As the role and scope of competition law and policy continue have anticompetitive effects, as almost 96% of them were cleared to evolve, competition authorities must constantly develop their without an in-depth investigation and without remedies, and tools and learn from each other. It is important for policy makers only 0.4% (or 27) of the over 8 500 merger decisions resulted in a and competition enforcers to stay up-to-date with the different prohibition (see figure 8). A small number of jurisdictions were ways in which competition law and policy is applied throughout responsible for a large share of the remedy decisions, with two the world. OECD CompStats and OECD Competition Trends jurisdictions responsible for 26% of the decisions with remedies, should help them to do so. and seven jurisdictions for 52%, while over half issued either no If you are keen to join this initiative of supporting data-driven remedy decisions or only one. competition policy, we invite you to participate in the CompStats database by filling out the questionnaire on the following link https://oe.cd/CompStats-2015-20. Inside a Competition Authority: Bosnia and Herzegovina 61

THE COMPETITION COUNCIL OF BOSNIA AND HERZEGOVINA AND ITS RECENT ACTIVITY Decision-making in competition cases 1. THE INSTITUTION The Council of Competition brings final decisions on different The Chairperson aspects of competition. However, the unsatisfied party may file Mr. Stjepo Pranjic, PhD, President of the Competition Council an appeal to the Court of Bosnia and Herzegovina. of BiH. 1st June 2020 – 1st June 2021 Agency’s competences in competition • Antitrust (agreements and abuses of dominance) The members of the Board • Mergers and acquisitions Mrs. Adisa Begić, a lawyer, • Advocacy to other public bodies Mrs. Arijana Regoda Dražić, MSci, Mr. Amir Karalić, PhD, Relevant competition legislation. Mr. Ivo Jerkić, an economist, The most relevant competition legislation is as follows: Mr. Nebojša Popić, MSci. The Act on Competition (“Official Gazette of BiH”, No. 48/05, 76/07 and 80/09), and 12 bylaws. They can be found on the The members of the Council are appointed for a six-year term. website of the Council www.bihkonk.gov.ba The last mandate began in 2016/2017 and will end in 2023. The provisions contained in the above stated legislative acts are The head of the staff to a great extent approximated with EU competition law. There is no head of the staff. It is to be noted that there is ongoing work on the new draft of Appointment system for the Chairperson and other key the Competition Act. roles Under Article 22 “the Council of Competition consists of six Other competences members who are appointed for a term of six years with the The most important CC activities have been described above. possibility of another re-election.” The appointment of the Competition Council is carried out in Number of staff of the authority the following manner: Case handlers (economists and lawyers): 11 - Three members of the Council of Competition are Other civil servants: 5 appointed by the Council of Ministers of BiH Supportive technical staff: 4 - Three members are appointed by entities’ governments. Number of staff working on competition In general, the Council of Competition has the competence to Total and break down between case handlers/managers and make bylaws (under provisions of the Competition Act), regulate administrative/support staff. definitions and calculate methods for particular activities, decide For the case handlers/managers, please complete the following on requests for the initiation of proceedings and conduct such table. proceedings, issue administrative acts for the completion of proceedings before the Competition Council, provide opinions and recommendations on all aspects of competition, either ex officio or upon the request of state authorities, economic entities or companies. The Council also adopts internal documents about internal organisation, gives initiatives for the amendments of the Act on Competition, provides opinions on draft regulations in other fields which may have an impact on market competition, and also cooperates with national and international institutions in the field of competition policy and law. Accountability The Competition Council of BiH drafts annual reports on 62

its work and submits them to the Council of Ministers of BiH, imposition of a fine and required the relevant Ministry to adjust which is responsible for adopting them. the disputable provisions of the Programme within a certain period of time to ensure that private medical institutes are also 2. ANTITRUST ENFORCEMENT OVER entitled to carry out sanitary checks. THE LAST 24 MONTHS Cartels Abuses of dominance Number of cases Number of cases

Fines 0. Fines Leniency applications 20.000 KM. 0. Dawn raids Dawn raids 0. 0. Main cases Main cases In the procedure against the undertaking “Central Heating” Non-cartel agreements (a share holding company in Tuzla), the Competition Council Number of cases identified that the above-stated undertaking had abused its dominant position in the heating distribution market in the City of Tuzla. The Competition Council, through the Decision concerned, imposed to the service provider the obligation to adjust such disputable provisions with the Act on Competition, i.e. every provision that contained elements of infringement were to be amended. The Decision also provided for the imposition of a fine on the share holding company “Centralno grijanje” d.d. Tuzla, Fines pursuant to Article 48 paragraph (1) item b) of the Competition BAM 108,618. Act, for infringing the provisions of Article 10 paragraph (2) item d) of the Competition Act. Dawn raids NA. 3. JUDICIAL REVIEW OVER THE LAST 24 Main cases MONTHS Decision defining that the Government of the Federation Outcome of the judicial review by the Supreme of Bosnia and Herzegovina, through adoption of the Decision Administrative Court on bringing the Program of expenditures of financial means, along with criteria for distribution of “Subsidies to private undertakings and entrepreneurs – incentives for the veterinary medicine” as defined in the Budget of the Federation of Bosnia and Herzegovina for 2019 for the Federal Ministry of Agriculture, Water management and Forestry. The Decision provided for the 63

Outcome of the judicial review by the first instance Courts 5. ADVOCACY OVER THE LAST 24 MONTHS Main initiatives One of the most important obligations of the CC is the constant promotion of competition under Article 1 of the Competition Act. Raising the business community’s awareness of the existence of the Competition Act and of the competences of the CC is a constant task. It should also be noted that the President of the In this part, we would like to express our dissatisfaction CC is a university professor who delivers lectures on competition regarding the work of the Court of BiH in the area of competition policy and law, thereby spreading the promotion of this concept policy and law. Unfortunately, when it comes to competition in academia. policy and law, competition cases have not been able to be effectively dealt with due to the fact that administrative procedure Results can be initiated before the Court of BiH. The Court of BiH The very growing number of competition cases before the CC decides on procedural and not procedural issues and very often underpins this position. takes years to come to a decision. There are a number of specific judgments by the Court of BiH (CRUMB GROUP, EUROHERC 6. MARKET STUDIES OVER THE LAST 24 OSIGURANJE, an insurance company against the Agency for MONTHS Insurance of BiH) that we are not very proud of. In the case of Main initiatives EUROHERC INSURANCE d.d. Sarajevo, the Court of BiH in its Market studies were conducted individually within the latest judgment dated 21 January 2021 ordered the Competition framework of specific case investigations in different areas of Council to revise the Decision dated 25 February 2015 and to act market competition. upon the request of the undertaking EUROHERC INSURANCE d.d. Sarajevo, which was filed due to the suspected existence of a restrictive agreement contrary to Article 4 paragraph 1) items a), b) and d) of the Law on Competition.

4. MERGER REVIEW OVER THE LAST 24 MONTHS Number of cases

Main cases 1. In December 2020, the CC brought a Decision on the authorisation of a concentration in the market of non- life insurance in the territory of Bosnia and Herzegovina, which concerned the acquisition of individual control of the undertaking ASA FINANCE d.d. Sarajevo over the undertaking Central Osiguranje d.d. Sarajevo. 2. In May 2020, the CC brought a Decision allowing the concentration in the bus passenger transport market in Bosnia and Herzegovina, which resulted in the acquisition of control of the undertaking Sejari d.o.o. Sarajevo over the undertaking Centrotrans-Eurolines d.d. Sarajevo. 64

Interview with the Chairperson: Mr. Stjepo Pranjic

te sudi” (meaning that the person suing you is also the judge in the case). In fact, this structural change is necessary given that there are judgments of the European Court of Human Rights (the “ECHR”) in competition protection cases (e.g. Dubus v. France) according to which, inter alia, a violation of Article 6 is Mr. Stjepo Pranjic, considered to have been committed when fines are imposed by PhD, President of the a body that combines the roles of investigator, prosecutor and Competition Council of BiH judge. In a figurative sense, this would mean that the Council What are the main challenges that your authority cannot initiate proceedings, conduct investigations, and impose is facing? What are your priorities for the near penalties which, according to the above-mentioned case law, future? have the character of a criminal offence. This means that all of The current Law was adopted back in 2005 and was subject to the provisions of Article 6 of the Convention have to be applied minor amendments in 2007 and 2009. The experience stemming in competition cases, in light of the severity of the threatened from the implementation of the Law prompted proposals for its fines prescribed by Article 48 of the Law, their retributive and amendment. In particular, individual state officers experienced preventive character, i.e. the example of the Council imposing a in the application of the legal provisions in specific cases voiced multimillion fine on a legal entity in the banking services market. their concerns about the current Law and submitted, in writing, When compared with the fines that may be imposed on legal shortcomings about the current text of the Law to the President of entities according to the BH Criminal Code, which range from the Council. The aim of this submission related to legal gaps and BAM 5,000 to BAM 5,000,000, it is already certain that the ECHR doubts (e.g. typos or inadequately worded-phrases, vagueness, would consider the position of the party before the Council from ambiguity, polyvalence, and thus the incompleteness of certain the point of view of the accused in criminal proceedings. legal norms) when it comes to the application of the law. Our number one priority is the adoption of the new Competition Having in mind the stated, and other deviations that are not Act. The President of the Competition Council of Bosnia and substantially harmonized with the acquis in terms of Article 70 of Herzegovina, Stjepo Pranjić, PhD, as a participant in the Fifth the SAA, the Council formed a working group tasked with creating Meeting of the Stabilisation and Association Committee between a new or amended competition Law. The biggest challenge in this the European Union and Bosnia and Herzegovina, which was process is to solve the problem of the so-called “ethnic veto” with held on 26 November 2020, informed the representatives of regards to the principle of the constitutive structure of BH. Then, the European Commission that a new text of the draft Law on in the second instance, to solve the problem of the right to appeal Competition was being drafted. During his presentation at the or judicial protection on the merit. The Court of Justice of the Fifth Meeting of the Stabilisation and Association Committee EU in the second instance examines the facts and conclusions, between the European Union and Bosnia and Herzegovina, i.e. the measures and sanctions imposed by the European the President of the Competition Council of Bosnia and Commission (the “EC”). In addition, in EU countries there are Herzegovina promised to submit it to the European Commission courts or chambers specialising in competition law with judges after drafting. The procedure for drafting the text of the Draft trained to decide on cases competently. From the above, it can Law on Competition within the Competition Council of Bosnia be concluded that securing the right to a legal remedy, as a right and Herzegovina is briefly explained below. of full jurisdiction, is a necessity. Even more problematically, the The Competition Council of Bosnia and Herzegovina right to a remedy is not ensured as a legal and factual issue within adopted an initiative to amend the Law on Competition in the existing law, which may constitute a violation of the rights the Work Programme of the Competition Council of Bosnia under the European Convention for the Protection of Human and Herzegovina for 2020. In this regard, the President of Rights and Fundamental Freedoms (the “Convention”). the Competition Council of Bosnia and Herzegovina issued Furthermore, the Commission should translate into norms Decision No. 01-02-1-167- 1/20 of 6 August 2020, which formed the principle of the independence of the Council so that it is no a working group tasked with drafting an integral part of the draft longer just a platitude and solve the structural problem of the law Law on Competition. in terms of separating the function of conducting proceedings The working group – the members of which were recruited from the decision-making function (separate inquisitorial from internally – is composed of those civil servants who work in the accusatory principle). This would ensure that there is no place proceedings before the Council of Competition of Bosnia and for pronouncing the famous local proverb “Kadija te tuži, kadija Herzegovina in order to apply the current Law on Competition 65

to specific cases (case studies) and members of the Council In fact, an individual norm should stipulate that the Council of Competition of Bosnia and Herzegovina who submitted members must be appointed to this position without limitation a written proposal for amendments to the current text of the of mandate and exclusively on the basis of references from Competition Law, including the President of the Competition competition law, i.e. that 2/3 of the members must be from the Council of Bosnia and Herzegovina. The Chairman of the legal profession. The mandate should be standardised in order Working Group is the President of the Competition Council of to continuously exercise the powers of a Council member from Bosnia and Herzegovina. When drafting an integral part of the the first election until the fulfilment of the legal conditions for Law on Competition, the Working Group harmonised the text of retirement. After the appointment, the function of a Council the draft Law on Competition with the primary and secondary member may be terminated in accordance with Article 23 of sources of competition law of the European Union. the Law. The exercise of the powers of a Council member is in In particular, I must point out that, in accordance with the fact the performance of the function of an administrative judge. recommendation of the European Commission from the Fifth Article 22 of the Law stipulates that councilors shall be elected Meeting of the Stabilisation and Association Committee between from among recognised experts in the relevant field and shall the European Union and Bosnia and Herzegovina, the provision have a status that is equal to that of administrative judges. Legal in the current Competition Law stipulating that a final decision matters decided by the Council are decided by the European on the Competition Council must include votes by one member Court of Justice in Luxembourg, and once elected the judges from each constituent people (the so-called national veto) was of this court are not subject to any restrictions on the exercise suspended, even though this principle stemming from the of these functions. The independence of the Council is also Constitution of BiH has been preserved. guaranteed by Article 71 paragraph 3 of the Stabilisation and In accordance with the discussion and agreement from the Association Agreement (SAA), i.e. all state bodies and other mentioned Fifth Meeting, the President of the Competition persons are obliged to maintain confidence in the independence Council of Bosnia and Herzegovina provided the text of the draft and impartiality of the Council by their actions and conduct. The Law on Competition and the Table of Harmonisation of the draft Council is neither a ministry nor an administrative organisation; Law on Competition with acquis of the European Union within it is not established by the Law on Administration, and instead the meaning of Article 70 of the Stabilisation and Association its competencies and activities are regulated by a lex specialis or Agreement between the European Communities and their the Law. Member States, of the one part, and Bosnia and Herzegovina, of I must point out that the internal organisation and the other part. The Competition Council expects the comments systematisation of the work and tasks of the Council have become of the European Commission on the submitted draft Law on very strained due to the increased number of proceedings before Competition, as well as its support in the further procedure for the Council, especially in terms of the number of experts and the adoption of the draft Law on Competition by the legislative the structure of internal units. These units are organised on the authorities in Bosnia and Herzegovina. classical principles of administration instead of being organised What are the points of strength and of weakness of on the principles of competition activity. For example, a your authority? department for prohibited agreements should be organised on With regards our authority’s points of weakness, I can say that the principle of determining prohibited competitive acts. the first barrier is the so-called “ethnic veto”. This is a voting As regards to our authority’s points of strength, I would say that regime according to which one councilor from each constituent overall our authority is pretty successful. In fact, the protection nation must vote for the decision of the Council in order for it to of competition on the BH market is somewhat better than the be adopted. This problem is compounded by the fact that there economic and political situation of BH and of the performance of is no guaranteed right to appeal. Abuse of the so-called “ethnic the economic and political institutions of BH. First, the existence veto” is also one of the significant indicators that the principle of of the Competition Law and the Council has a preventive effect the independence of the Council has been violated. on legal entities in terms of compliance with competition rules. Although Article 21 of the Law generally stipulates that the They know that a fine or other penalty, e.g. reversal of business Council is an independent body that will ensure the consistent management decisions, may be imposed if they commit a application of the Law throughout BH and that it has exclusive competition law violation. In this way, the Council is present in competence to decide on the existence of prohibited competitive the market and forces companies to be competitive. Otherwise, activities in the market, this is not translated into norms in order they would be sanctioned by the law of supply and demand or to protect against the actions of persons in councilor election exiting the market. In this sense, the Council contributes to the procedures, types (collective or individual mandates) and the development of the BH economy and society in general. duration of the mandate, the manner of decision-making, etc. Over the last two years, what are the decisions 66

adopted by the authority that make you particularly whole heating season. proud, and what are the cases that could have been The Competition Council took into account the fact that conducted better? the agreement on heating energy supply had been concluded I am especially proud of the decisions set out below. between the heating energy distributor and the beneficiaries 1. In the procedure against the undertaking “Central Heating” of the heating system. Therefore, the subject of the agreement, (a share holding company in Tuzla), the Competition Council as well as rights, liabilities, and termination of the agreement identified that that the above-stated undertaking had abused its by the distributor or beneficiaries must not be dependent dominant position in the heating distribution market in the City on a third party, since the agreement does not refer to a third of Tuzla. The undertaking concerned is the only distributor of party; consequently, the behaviour of a third party cannot be a central heating energy in the City of Tuzla, and it applied the determining factor in the exercise of any rights stemming from provisions of general act providing conditions of the tariff buyer the agreement, especially if a beneficiary of the central heating exclusion from the heating system under which the service service is willing to terminate this service. Such a condition beneficiary cannot be excluded from the system without the makes the termination of the agreement practically impossible, consent of other beneficiaries or unless all other beneficiaries are and it not only creates a financial obligation for one party but excluded. The general act also provided for the obligation to pay also brings into question the equality of the contracted parties. for all the costs after the beneficiary is excluded from the heating system. The Competition Council, through the Decision concerned, Central Heating required the beneficiaries of the central imposed an obligation on the service provider to adjust the terms heating service (where consumption and billing is carried out per of the agreement that were contrary to the provisions of the Act MWh) to obtain the consent of all other beneficiaries registered on Competition, i.e. every term that contained an infringing to the joint measuring system if they wanted to be disconnected element was to be amended. and excluded from the system. The Competition Council 2. In January 2021, the Competition Council brought a determined that this resulted in the imposition of additional Decision, within the procedure initiated to establish the conditions that were not related to the contractual relationship existence of an illegal agreement in the market of veterinary between the parties, as it meant that the service beneficiaries services concerning veterinary laboratory diagnostics in the depended on “good will” or third party interests if they wanted to territory of the Federation of BiH. The Decision in question cancel the central heating service, which is prohibited under the established that the Government of the Federation of BiH, by Competition Act and constitutes an abuse of dominant position. adopting the Decision on the adoption of the Programme for A similar situation occurred as regards to the beneficiaries of expenditure of means along with criteria for distribution of central heating in a joint consumption spot, representing one „subsidies to private undertakings and entrepreneurs – subsidies energetic unit, to which the expenditure and price of heating to veterinary medicine“ defined by the Budget of the Federation were calculated per m2. These beneficiaries were unable to cancel of Bosnia and Herzegovina for 2019 to the Federal Ministry of the central heating service unless all of the service beneficiaries Agriculture, water-management and forestry („Official Gazette were excluded from the system. In the period between 2017 to of FBiH“, No: 37/19). In the part of the Programme relating 2019, 76 beneficiaries of the central heating system connected to to the identification of organisations receiving the transfer, a joint consumption spot – which represents an energetic unit – the Federal Ministry of Agriculture, Water-Management and where consumption and pricing were calculated per m2 asked to Forestry – by adopting and applying Article 10 paragraph (1) of be excluded from the central heating system. The beneficiaries the Recommendations for the implementation of measures to argued that they were not using their apartments (since most of eradicate and prevent infectious diseases and parasitic animal them were living abroad) and therefore should not have to pay illnesses for 2019 – (“Official Gazette of the Federation of BiH”, for the heating services, and that nobody lived in the apartments No. 52/19) prevented, restricted and distorted competition in due to legal disputes, etc. Furthermore, some of the beneficiaries the market of veterinary laboratory diagnostics in the territory asked, in their requests to be excluded from the heating system, of the Federation of Bosnia and Herzegovina, by limiting and for at least a reduction in the amounts billed to them or for the controlling the market within the meaning of Article 4 paragraph installation of individual measuring devices. However, since (1) item b) of the Competition Act, which represents a restrictive such provisions were not stated, the beneficiaries were not able to agreement. The provisions of the above stated acts were declared be excluded from the central heating system, which was absurd anti-competitive ex lege, and a fine was imposed on the Federal because those who requested to be excluded from the central Ministry of Agriculture, Water-management and Forestry. The heating system were not living in their apartments and yet they Competition Council concluded that the such provisions created had to pay the same amount as those who lived there during the discriminatory provisions at the cost of private undertakings, 67

namely certified labs. concluding an agreement for DTH system of transfer. The procedure was initiated against the Government of the A fine was also imposed on the undertaking United Media Federation of Bosnia and Herzegovina and the Federal Ministry S.à.r.l., which must be paid within the set deadline. of Agriculture, Water management and Forestry on the request As regards to the cases that could have been dealt with better, of the Veterinary Laboratory MULTI LAB d.o.o. Tuzla (a limited I would particularly like to mention a Decision adopted in April liability company), Plane bb, Tuzla. In the concerned procedure, 2018. In this decision, the Competition Council terminated it was established that the existing regulations in the area of the procedure against the economic entities Addiko Bank d.d. veterinary services at state and federal level did not ban the work Sarajevo, Addiko Bank a.d. Banja Luka and Agency for Banking of private veterinary labs, namely, these labs were not operational of the Federation of Bosnia and Herzegovina and Agency for outside the system, which meant that the diagnostic examination Banking of the Republic of Srpska , which was initiated upon of animal blood samples was legal. Furthermore, it was stated the request of the Association of the loan beneficiaries “Švicarac”. that referential labs were to supervise the private labs, at least The procedure aimed to establish that the above-mentioned once a year, and private labs were disabled equal participation. entities had engaged in unlawful competition practices.. Therefore, the Government of the Federation of BiH and the The applicant claimed that the economic entities Addiko Bank competent Ministry failed to take into account the principles of d.d. Sarajevo and Addiko Bank a.d. Banja Luka had infringed market competition so that all the labs fulfilling the prescribed the Law on Competition, specifically Article 4 paragraph (1) conditions, as in case of the private veterinary lab MULTI items a), b), c), d) and e) of the Competition Act, by concluding LAB, would be able to access the relevant market of veterinary restrictive agreements. Consequently, it asked the CC to establish lab diagnostics in the territory of the Federation of BiH. In that the concerned entities’ Loan Agreements containing CHF its Decision, the Competition Council stated that all of the clauses amounted to restrictive agreements and, furthermore, concerned authorities must modify their regulations to ensure that these agreements constituted an abuse of dominance. The that they are in line with the core principles of the protection of competition restrictions related to the determination of specific market competition, according to which no provisions should be bans, sanctions, deadlines as well as measures for removal of adopted that may result in market participants being placed in detrimental consequences of such behavior, and that Agency an equal position. for Banking of the Federation of BiH and Agency for Banking 3. The Competition Council of Bosnia and Herzegovina, on of the RS, through non acting, namely omitting the prescribed 22 April 2021, adopted a Decision in the procedure initiated supervision and control of legality of operations of economic upon the request of the undertaking Mtel a.d. Banja Luka (a entities Addiko Bank d.d. Sarajevo and Addiko Bank a.d. Banja share holding company), Banja Luka. The procedure aimed Luka, as well as omitting to give specific instructions and for to establish that the business entities United Media S.a.r.l. non taking up measures to protects consumers’ rights (including Boulevard Pierre Frieden 43, L-1543 Luxembourg and Sport the Applicant), along with economic entities Addiko Bank d.d. Klub d.o.o, 71000 Sarajevo were in a dominant position within Sarajevo and Addiko Bank a.d. Banja Luka, achieved „joint the meaning of Article 10 paragraph (2) items b) and c) of the actions“ and „explicit and tacit deal“ having characteristics of Act on Competition. restrictive agreement, in accordance with Article 4 paragraph 1) items a), b), c), d) and e) of the Competition Act. In the Decision concerned, the Competition Council What is the level of competition awareness in your established that the economic entity United Media S.à.r.l., country? Do policy-makers consider competition through its business representative “Sport Klub” d.o.o. issues? Is competition compliance a significant Sarajevo (a limited liability company), had abused its dominant concern for businesses? position in the market of Bosnia and Herzegovina, within the One of the most important obligations contained in Article meaning of Article 10 paragraph (2) items b) and c) of the Act on 1 of the Law is the duty imposed on the Council to promote Competition, through refusal to conclude distribution agreement the protection of free market competition (i.e. competition of DTH system of transfer with the economic entity Mtel a.d. advocacy). The number of cases pending before the Council Banja Luka, Banja -Luka, Bosnia and Herzegovina. United Media provides an indication of the level of awareness of the business S.à.r.l. has been ordered, via its business representative “Sport community about the existence of the Competition Law, which Klub” d.o.o. Sarajevo, to provide Mtel a.d. Banja Luka – within 60 sets out the rules of competition and the powers of the Council days – a commercial/technical offer for the distribution of Sport to protect these rules. A Council member oversees 3-5 cases Klub channels for DTH system of transfer, and to amend the on a continuous and permanent basis. This information per general conditions so that they define, in a transparent and non- se provides the answer to your question. There is sufficient discriminatory manner, the method for submitting an offer and awareness of the importance of doing business in accordance 68

with competition law among market participants, whether they come from the private or public sector. If you could make one major change in your national competition law tomorrow, what would you choose? I would definitely choose the amendment of the text of Article 22, the composition of the Council of Competition) which states that the Competition Council consists of six members who are appointed for a term of six years with the ‚possibility of being relected once. Namely, the limitation of mandates for members of the Competition Council should be removed, for the reason that nomination of members of the Council is carried out by entity governments and Council of Ministers of BiH, to be more precise by individuals who are not prominent experts in the area of competition policy and law, but rather politicians from the ruling parties. Do you find that international and regional cooperation is helpful? Is it working well? Yes. The Council is obliged, pursuant to Article 25 paragraph 4 of the Law, to cooperate with international and national organisations in the field of competition, on the basis of which it may provide and request data and information related to factual or legal issues. The Council implements this obligation by being a member of the International Competition Network (ICN) and the European Competition Network (ECN). The status of a network member results in global, regional and bilateral cooperation obligations with competition regulaltors from all around the world, including Europe. In order to improve cooperation between institutions for the protection of market competition freedom, the Council has so far signed Memorandum of Understanding Agreements with the competition authorities of Croatia, North Macedonia, Bulgaria, Serbia, Turkey, Slovenia and Montenegro. Also, last year, a Memorandum was signed with the Secretariat of the Energy Community in Vienna. What is your opinion about the OECD-GVH Regional Centre for Competition? Do you have suggestions for its improvement? I have only positive things to say about the work of the OECD- GVH Regional Centre for Competition. 69

The RCC video project “Key competition topics explained in a few minutes” The OECD-GVH Regional Centre for Competition has The second video addressedcompetitive neutrality. Notably, developed a set of short, focused videos that explore key in May 2021 the OECD Council adopted a Recommendation competition notions. The videos provide a summary of the key on Competitive Neutrality, which establishes a set of principles messages conveyed in our seminars and offer our beneficiary ensuring that governments’ actions are competitively neutral and competition authorities, as well as any competition explorer, that all enterprises face a level playing field, irrespective of factors additional and engaging training opportunities. All videos are such as the enterprises’ ownership, location or legal form. The available in both English and Russian. RCC video provides a comprehensive overview of these issues “Bid rigging and competition policy” is the topic of the third in only 6 minutes. Published in late April 2021, the video has and latest RCC training video, which was launched in June 2021. already reached 600 views (500 for the English version and 100 The first video focused onantitrust commitments. Launched for the Russian version). in February 2021, it has scored more than 1.3 thousand views The last born is the video on bid rigging in public procurement. (900 for the English version and 400 for the Russian version), The English version was published on 15 July and reached 500 qualifying as the most viewed OECD video on competition in views in only 10 days. The Russian version will follow shortly. 2021.

https://www.youtube.com/playlist?list=PLyBGvyEYBNlq5nWCYUzri1-1XvMTNAf2N 70

Literature digest

In short, the paper argues that, to combat big rigging, we must look beyond sanctioning corruption and anticompetitive practices. We also need to design tenders in a pro-competitive way. In developing this argument, this paper provides an analysis of bid rigging and the problems it creates from a competition and Pedro Caro de Sousa, corruption perspective. It is recommended reading for anyone Competition Expert, OECD interested in the topic, and it provides a wonderful source of analysis, literature and practical examples. This issue of the Literature Digest for the July 2021 issue of the RCC Newsletter looks at three papers on bid rigging. In Albert Sanchez-Graells on ‘Competition and Public addition, I suggest you refer to the OECD’s Recommendation Procurement’ (2018) Journal of European Competition Law and Guidelines on fighting bid rigging in public procurement. & Practice 9(8) 551 It is available at https://www.oecd.org/competition/cartels/ This piece surveys the interaction between competition and fightingbidrigginginpublicprocurement.htm, where you will also public procurement law in Europe. It discusses recent examples find examples of OECD work in this area. of competition enforcement against bid rigging throughout More detailed reviews of the papers discussed below – and of Europe and concludes that a continued focus on competition other papers – can be found at www.antitrustdigest.net. enforcement against bid rigging is appropriate given trends towards less competitive tenders for public contracts over the Robert D. Anderson, Alison Jones and William Kovacic past decade. At the same time, recent judicial setbacks show that ‘Preventing Corruption, Supplier Collusion and the competition authorities need to properly base their findings on Corrosion of Civic Trust: A Procompetitive Program adequate theories of harm and complete factual investigations. to Improve the Effectiveness and Legitimacy of Public The paper also discusses efforts by competition authorities Procurement’ (2019) 26 Geo. Mason L. Rev. 1233 to detect and prevent bid rigging from taking place. As regards Governments around the world spend an estimated US$9.5 detection, it discusses some initiatives by competition authorities trillion on goods and services each year. This accounts for roughly to screen actively for bid rigging in detail (an example of which one third of government expenditures (29.1% on average in can be found in the paper below). As regards prevention, OECD countries) and 10% to 20% of total gross domestic product competition authorities have been active in developing guidelines (“GDP”) in many nations. Furthermore, public procurement is on the application of competition law to joint tendering and an essential input to the delivery of broader public services and subcontracting arrangements and in disseminating these functions of government that are vital for growth, development guidelines through advocacy efforts. The paper discusses a and social welfare. number of such guidelines and efforts in detail, and extracts Conventional responses to the problems of corruption and lessons for the future. supplier collusion in public procurement comprise two broad Finally, the paper also looks at competition-oriented sets of tools. The first, focusing on corruption, involves measures developments in EU public procurement case law. This includes a to increase the transparency of public procurement and to detailed and in-depth discussion of how public procurement law strengthen the accountability of responsible public officials for can be influenced by competition law, in ways that may limit the malfeasance. The second, aimed at preventing supplier collusion, possibility for bid rigging and facilitate antitrust investigations. focuses on the effective enforcement of national competition This is a very interesting and practical paper, which is likely (antitrust) laws. However, measures to increase the transparency to be of interest for anyone working in this area. It benefits of public procurement and to strengthen the accountability of greatly from having been written by a leading European expert public officials cannot completely eliminate the vulnerability of on public procurement rather than by a lawyer that is purely public procurement systems to corruption and may render public specialised in competition law. This allows the paper to offer an procurement systems more susceptible to supplier collusion than integrated perspective on public procurement and how best to private sector purchasing. combat bid rigging, according to which it is not only essential This paper seeks to develop a more comprehensive and for competition law and public procurement law to be coherent holistic approach to public procurement, and it proposes a set but also for competition and public procurement authorities to of measures that can deter and increase the resistance of these cooperate with one another. systems to supplier collusion without necessarily increasing their vulnerability to corruption. David Imhof, Yavuz Karagök and Samuel Rutz ‘Screening For Bid Rigging—Does It Work?’ (2018) Journal of Competition Law & Economics 14(2) 235 This paper proposes a method to detect bid rigging that is particularly well suited to address the problem of partial collusion, i.e. collusion that does not involve all firms and/or all contracts in a specific dataset. It explains how the authors applied mutually reinforcing screens to a dataset on Swiss road construction procurement in which no prior information about collusion was available and how this method succeeded in isolating a group of “suspicious” firms. It further describes how the screen led the Swiss Competition Commission (COMCO) to opening an investigation and sanctioning the identified “suspicious” firms for bid rigging. In addition to providing an example of a method developed and deployed by a competition authority to identify bid rigging in the real world, this paper provides an interesting overview of available cartel screens and of the literature concerning them. The authors successfully demonstrate the benefits of developing and deploying suitable screens to identify collusion. Good luck, dear Milán!

As incredible as it may sound, Milán and I have been working together on a daily basis for more than one year without ever meeting in person. I have no idea whether he is as tall as a basketball player or as short as an elf, although I lean to the former... Weirdness of these crazy Covid-19 times! Milán took over the responsibility for the RCC in the worst possible moment – when the sanitary crisis hit and forced us to move our Budapest seminars to a virtual format. He had to learn quickly, because the RCC is a complex machinery and we were sailing in uncharted waters. He exceeded our expectations. In a short time, we were able not only to offer a decent alternative to the seminars in Budapest, but also to go on the offensive and develop the RCC training video project, while completing the transition of our newsletter to a fully-fledged review on competition policy as you can read it now. We have also foreseen a number of other initiatives that will hopefully see the light of day soon. As an Italian saying goes, you can recognise a winning horse at the start of the race, and Milán is a winning horse. He is smart, careful and reliable. He has always considered the views of more experienced colleagues, but has increasingly added his personal ideas and style. Above all, almost 30 years of work has taught me that the most important factor for professional satisfaction is human relations. It is even more important than the substance of your job. Working with Milán, although only virtually, has been a pleasure. I have admired his kindness, openness and human touch. Now Milán is leaving the GVH and hence the RCC is losing another fundamental asset. I hope that he will hold great memories of this period and that the experience he has acquired will be helpful for his future professional and personal challenges. Thank you very much and good luck, dear Milán!

Renato Ferrandi

CONTACT INFORMATION

OECD-GVH Regional Centre for Competition in Budapest (Hungary) Gazdasági Versenyhivatal (GVH) Alkotmány u. 5. H-1054 Budapest Hungary

Renato Ferrandi, Gabriella Szilágyi, Senior Competition Expert, OECD Head of Section, [email protected] International Section, GVH [email protected]

Milán Bánhegyi, Orsolya Hladony, OECD-GVH Coordinator, Assistant, International Section, GVH International Section, GVH [email protected] [email protected]

Translation from and into Russian by Taras Kobushko.